All Forum Posts by: Benjamin Blackburn

@Jake Martin unimpressed about what?

@Ryan Spath That could be very helpful. Thanks! I'll shoot you a message and we can connect. 

I would add, I do have a more detailed pro forma on hand already. I'm just working on solidifying my numbers.

I apologize for the long post, but I like to be thorough! I'm looking at a potential deal and don't want to be overly optimistic about the numbers. 

This would (potentially) be my first property flip. I would say I'm fairly knowledgeable about most aspects of the process, from accounting, projections, purchase, financing, rehab, and resale. I've profited plenty from remodeling/selling my own SFR houses, but I've not actually done a short-term flip on my own. I have a degree in business, and I currently own my own remodel contractor business. I've remodeled houses for lots of residential flippers in the past.

I am looking at a property in Boise that's certainly under-performing, and an aging landlord who hasn't listed the property with an agent yet, but he is willing to sell in the next 3-6 months. I may be one of the only people that knows the owner is looking to sell in the near future.

Currently, 5 commercial tenants:

• - 2030 total sf of retail, split into 2 units
• - 1900sf total sf (2 units) “mixed use” space (roll up doors) on the back side of the building.
• - One tenant leasing a (very messy) fenced lot in back, about .41 acres.

It’s a stand-alone building, on a very busy / high traffic street, with street signage, in a very fast-growing area. Lots of parking space in front and around the building.

The owner wants $1.2 million for it, which would mean a cap rate of 7.92% if his basic financials are accurate. The building is old and he’s BARELY had any significant expenses in the last 30+ years because he manages it himself, he passes ALL maintenance/upkeep costs on to the tenants, and he has only done month-to-month leases that are very easy to keep tenants in or get new tenants. He’s not had any vacancy-related losses or costs that he can remember. The building is aging but in overall good shape, although it needs a paint/refresh for sure. It’s weather tight and has a good roof, at the very least. Plumbing, electrical, and HVAC are up to code from what I can tell.

THE PLAN:

• - Sign 3-5 year leases for current tenants that are all currently month to month. All have have already been there for 2 to 7+ years.
• - Modest 10% increase in lease rates for the 4 tenants in the building (still WELL within fair market)
• - 22% lease increase for the one tenant leasing .41 acres of space with a couple sheds for his business. The space looks like mostly just dead vehicles and trash, with a chain link fence around it. A 22% increase in the lot lease rate would be very fair, or the currently leased area could be split/shared, allowing for 2 tenants rather than just one.
• - Set accurate CAM or NNN rates for tenants, likely about 5% additional
• - Leasable square footage increase - About 250sf of “common” space that would easily be converted to an office with its own entrance, and could be leased to a new tenant OR offered to one of the current tenants.
• The higher NOI and improved valuation should allow for a significant profit.

FINANCIALS

• - Current - $95k NOI from $98,100 of lease revenue
• - Projected - $106k NOI from $115k of lease revenue
• - 7.92% - Current CAP rate ($1.2 million purchase price)
• - 6.5% - Projected CAP valuation ($1.63 million sale price)
• - $113k rehab/sale costs
• - Net zero holding costs - should be fully covered by new lease rates
• - $430,000 - Projected Property Value Increase
• - $317k - Projected PROFIT - Split between me and the down payment / finance partner

COSTS Summary:

• - $82k realtor fee upon selling (5%)
• - $30k rehab - Includes reclaiming “common” space as a new 250sf office space, and exterior paint/refresh.
• - 20% down payment - Partner w/ shared profit, no set interest rate
• - 10% DSCR interest loan - 1:1 Ratio covered with current rent, even better with increased new rent
• - Hold - 3 to 12 months, but holding costs would be covered by the rent 

In my mind, the 6.5% cap rate is very conservative for a lot of the market around here, although most higher-valued properties have property managers OR they are much larger, and well above the $100k NOI. I've seen some spaces that are much closer to

There’s significant potential for the next buyer to occupy either the building OR the back lot, and there’s potential for additional building space on the lot.

My current financial partner was planning to front the 20% down payment and the rehab costs in exchange for a significant share of the profit, rather than a flat interest rate. However, my partner isn’t 100% committed yet, and may want to use his money for a different project instead. I’d say he’s about 50/50 on whether he’ll come through on this.

I had figured that $315k split between 2 partners would be worth the overall time and investment. But, I realize there’s no such thing as a sure thing, and there are plenty of unknowns and variables. If the margin % isn't big enough, a small swing could mean a net loss instead of a net profit.

Am I looking at a good deal here, or are my projections too naïve? If I had the 20% down payment on hand, I truly think I’d just do the deal myself and hope for the best.

Thanks for the responses. I'm in Idaho. I actually spoke with the owner and we may actually set up an owner-financing agreement rather than a lease option. I've got a few days to figure it out though. I personally would prefer owner financing, although I've not done that before either.

It looks like I have an opportunity to lease a property with the option to buy while I get my financing in order. The opportunity came up before my financing was ready, but I don’t want to miss out.

I’ve not done a lease option before, so I was hoping someone out there can point me in the right direction to get paperwork in order.

@Brandon Pelfrey that meeting would be great to attend. I'd love an invite! 

@Jim Paulson let's connect! I'll pm you.

Being new to the area, I'm realizing I'd benefit a great deal from knowing other investors and contractors in the area. Anyone out there want to connect? It would be great to work with locals before or during my next project.

@Greg Betts I'll check with Tom. Thanks! I'll google him for contact info, assuming he's not on BP.