All Forum Posts by: Adam Dow

@James Syed

Do you mean the property management expense ratio? It works out to be 6% which includes the 5% base rate, plus the property manager's other variable fees. 

Your advice makes sense; I think the numbers need to work with the property management fees included. I may have to pass on this one. Thanks for the input. 

Hi everyone, 

I am running some numbers on a nice 12 unit building in my area. The current owner hires a property manager and pays 5% of gross rents plus rent finder's fee and a few other variable fees. The seller keeps really good records of expenses and has provided me with detailed income statements outlining property management expenses, finder's fee, etc. If I buy this property, I plan on taking care of all property management needs myself (except for repairs and maintenance), so I will be saving the 5%+ fee the owner is currently paying. My question is: when I am analyzing the financials on this building, should I adjust the expenses to reflect the fact that I will not be paying the property management fees? The numbers do not work with the property management fee (yielding less than 6% cap rate, cost of financing is 3.5%) if I run the numbers exactly as provided from the seller. If I take the property management fee out, the property is above a 6% cap rate, which is my minimum and seems like an OK investment. However, I am concerned that if I leave out the property management fees of my pro forma, I may be making the property look like a better investment than what it really is. 

The property is already priced at a premium due to the high demand, almost no supply, and near-zero vacancy rates in my area. Very little room for price negotiation here. This would also be my fifth property in 5 years, but this would be my first building bigger than a duplex. So this is a bit more of a complicated property to analyze compared to my previous ones which were pretty straightforward. 

Any suggestions would be greatly appreciated!

Adam 

Roy, 

Thanks for the recommendation. I will check out that book, sounds like it would have some good information. 

By converting your USD to CAD, you are getting much more bang for your buck, so that's a nice bonus. I would look into the tax consequences as well, there's probably nothing to worry about with a single family home but it doesn't hurt to check in with an accountant who is familiar with cross-border investments and income just so that there aren't any surprises at tax time. 

Hi Everyone, 

Just decided to sign up here as I recently discovered the BP podcast. I am from Charlottetown, PEI, Canada and have been investing in real estate for 4 years (bought my first duplex at age 22). I currently have 3 duplexes and a single family home that I live in. 

The next step for me is to buy bigger multi-unit properties. I am now looking for a 6+ unit property and I am looking for investors. I am wondering if anyone has any suggestions on how I should legally structure the deal with partners? What I mean is should I incorporate a company first and then sell shares to investors? Or try to find investors, and then incorporate? Or maybe I shouldn't incorporate at all and just set it up as a partnership (would save money on legal and accounting fees). If anyone has experience in this that would be greatly appreciated!

Look forward to hearing your suggestions. 

Adam