All Forum Posts by: Adam Johnson

Are the members of both corporations/ partnerships identical or are there additional members in Realty Corp?  I am curious how much "real" negotiation might really exist to renew the lease. If the members are the same and the renewal is more of a formality, then I would think the term of the lease has less bearing. This is also true because, in this particular case, you are really talking amongst each other, so the purpose of any valuation, including a formal appraisal, is different than it would be if you were selling the property, or refinancing it. 

I don't follow what you are asking at all.  What is your relationship to this and why are you asking.  WAY too many details missing here

Glad to help. As the buyer, you determine the value to you after factoring in everything. I have walked away from deals I really wanted to happen because the sellers desires and my desires just didn't match. I NEVER buy based on an appraisers opinion, I rely on my own opinion after digging into the deal.

It kind of depends on what your end game is.  Part of the consideration is the "highest and best use" for the property.  If that is the current configuration, then dig deeper.  If it is better to be bulldozed and build a big box store on it, then it is a whole different analysis.  Ultimately, in any investment, a property is worth what a buyer will pay for it.

A real quick summary here.  Determine how many leaseable spaces exist.  Then determine what the total potential rent that could be collected for those spaces.  That is your maximum potential income.  

Next, add up all of your costs - utilities, taxes, management fee (even if you manage it yourself, this has value), maintenance including reserves for big ticket items, any landlord utilities, any landlord common area maintenance, and an allowance for vacancy based on what is typical in your area.

Subtract expenses from potential income, that equals your net income. Ask around your current area to get an idea what CAP rate similar properties sell for in your area. It is important to use similar properties, you won't want to compare the subject property with a big box national brand retail property with an A-credit tenant on a 20-year lease, for example, because it doesn't sound to me like that is the type of tenant your subject will appeal to. Once you know have a reasonable CAP rate, you can figure an approximate value based on the income approach, which is likely what an appraiser would use for this type of property (though this is not ALWAYS the case).

Using your numbers above (which don't include all expenses or income, just a demonstration) and taking a wild guess of a 13 cap rate (don't use that number without verifying it), the net income would be $ 834/month x 12 = $ 10,008.  Take 10,008 divided by .13 and you end up with $ 76,985 in value using the income approach.  Again, my example numbers miss a lot, so don't use them.

You make your money when you buy.  When I buy, I look closely at CURRENT income.  If a property is 50% occupied, I base my decision largely on that.  It is going to be MY time/effort/cost to increase occupancy, so I should reap the rewards more than the seller that doesn't want to deal with it.  Be sure to look at occupancy in other nearby properties.  Is it just this property that is stressed or are others stressed.

One last thought - CAP rate calculation does NOT take into consideration debt service. You should also look at the potential cash flow on the property. Let's say you are able to buy the property at a 13 cap (or whatever cap for that matter) based on current occupancy, that may look like a good deal. But if the occupancy is only 25%, you may find that minimum expenses and debt service coverage are more than the total income, so you just bought yourself a potential money pit. Maybe it's still worth it, but you need to know that before you commit to anything.

My two cents regarding phasing that has been already touched on by Michael - the outdoor storage is probably the cheapest per sq. ft. to develop.  If you design your site ahead of time and get the grading work done as if you were going to add buildings in that area in the future, you can provide outdoor storage on the subgrade stone/gravel base (unless the municipality requires paving).  Going this way also gets your toes in the water without jumping all in too.  After you open with some storage space and some outdoor storage space, you can see what the demand is at YOUR location, then continue developing it with that in mind.  

While not having the RV storage covered reduces the value of that storage space, it also reduces your upfront development cost and leaves you with maximum flexibility.  For example, if you build a 20,000 sq. foot canopy space to park RV's under and later find the demand and return is much higher for traditional storage space, you may find that the higher canopy is more expensive to convert and wastes vertical space (traditional storage space has much lower ceiling height than RV).  Alternatively in this example, if you grade for that same 20,000 square foot canopy, but don't actually build it and simply use the stone base for outdoor storage, you are not committed.  You can do a lot of things in a few years.  

I would look at it from the point of view that, at this point, you want to maintain some flexibility with the square footage of land, or at least part of it, as opposed to trying to guess how your potential customers might want to use square footage of building space.

I am not an expert on this, but I heard of an older dentist office near me a while back that had some environmental issues. I think it was related to the x Ray's, but not positive. Be thorough during due diligence

Not a lot you can do about the shutdown. I would suggest speaking with your attorney to keep the contract in force since you may miss important deadlines

@Tara Piantanida-Kelly - I'm not far from you, so curious which bank you worked with on this.  If you prefer to PM me, that's ok.  

I saw your update post about the one property being an hour away and an extra challenge.  One lesson I was taught before my first blanket mortgage was to make sure there is a clause allowing you to sell off one property without having to refinance the remaining properties all over again.  A very recent example of the importance of this for me - we have 4 properties under a blanket mortgage with Bank of Castile.  Out of the blue, a neighbor of one of the properties contacted us to ask our interest in selling, even though we weren't even considering it.  We are still negotiating, but because we have that clause in our current mortgage, I have already confirmed that I could sell the subject property, pay a certain amount against the mortgage in order to get a partial release of mortgage for the subject and continue forward.

@Joel Owens - understood.  Several years ago, I was taught by a seasoned investor/lender that it takes about the same amount of time to put together a $ 50,000 deal as it does a $ 5,000,000 deal, so he focuses on larger deals.  That is essentially where I am at now with my investments, looking for larger deals to put together (larger by my own standards).

I understand time leverage and how it goes along with money leverage, they are both important factors.  I will keep my ears open and begin to look for a junior broker looking to earn some stripes and grow along with me.

@Joel Owens and @Matthew Olszak - if I can pick your brains for a minute, I'm interested to hear your thoughts.

Primarily I am an investor growing my own portfolio.  I started with 2-4 family and have added a few mixed use properties and a mobile home park.  We are looking to add a self storage to our holdings at some point as well.  Generally speaking, we look for some form of distress (poorly managed, poorly maintained, or both) and roll up our sleeves to fix the problems, then hold long term.  We focus on multi-tenant properties, most of which currently have a residential component to them.  In time, that may shift, who knows, but having the potential for multiple tenants and looking for value-add opportunity are pretty constant.

I am a licensed broker with access to the MLS. I used to have premium membership with Loopnet, but don't do enough deals to justify the cost, so I use the free side and have a few searches set up to watch for properties that might interest me. Honestly, my license was more for my own education than it was to broker deals for others. I have not done a great job of networking with other agents/brokers, in part due to being unimpressed with the vast majority of the ones I have been in contact with.

With all of that, my question is - how do I go about finding and building a network of brokers to scout deals for me?  I don't do a huge number of transactions.  I've had years where I do 3 closings as principle and years that I haven't done any.  Should I be seeking one broker to build a strong relationship with or should I be building a network?

As I transition from 2-4 unit multifamily (which are fairly easy for me to sniff out and close) to more illusive commercial properties, I need to change my tactics. I've closed a few that I found on the MLS and do have a small network of people that call me if they stumble across something of interest, but I would like to see more leads on properties coming my way.

Thank you in advance for your insight.