Deal in small town Canada (Brockville)

[Chris Habets]

Hi all,

I've got a deal on the line in Brockville, Ontario, (near Ottawa). It's a mixed use, 2 commercial units (storefront), 5 apartments (3x2/1, 2x1/1), one "weird" commercial unit in the basement that is quite a large space but has no road frontage. Used to be a thriftshop, currently unrented.

Only 2 apartments are currently rented at $700/month each, and both commercial units are rented at $1200 and $1300, leased until 2021. The owners have not been trying to fill the units for years.

It has around $40K of deferred maintenance that needs to be done.

Units were rented at $700x3 and $600x2. The property manager we spoke to thinks it should be $1000x3 and $800x2, but I think that's a bit high. I ran it at the "previously rented" rates.

The owners are asking $279K, but I've ran the numbers below at $239K based on a $325K ARV. Putting 40% down (seems high, but that's what we expect for a commercial loan - I haven't looked into alternative financing yet). Mortgage at 5% and 25 years.

Assumed a 9% vacancy rate, a 20% cap-ex rate (very old building) and applied a ~10% buffer rounded up on all of the utility bills we've seen as well as insurance. Property tax is estimated. Assumed sold in 10 years - although I expect it would be a hold property for longer.

May as well put the analysis in at full asking price...

"Calculated Sale Price" is a number I use in other things, no real need to look at it. What do you think?

[Thomas S.]

I think it is a mistake to value the property based on full occupancy. You are paying for future income not present and that is a mistake.

The problem with our market is that realtors are stupid when it comes to actual value and sellers are extremely greedy up here.

I believe you are over paying but the likely hood is some one else will pay the price since investors up here simply follow the trend.

Small towns are a tough market and the economy there may be facing a hit in the next few years.