All Forum Posts by: Daniel P Willis

@Ronald Rohde

Makes sense, thank you for the advice.

@Joel Owens wow, that's s huge help thank you. So it's any property considered unstablized if it's 50% vacant or more or does that term have to do with it losing money or both? How would you value a property in that situation, towards the bottom of that post I lost his asking price and how I figured the value, could you look at that and tell me if I'm anywhere close to valuing it correctly?

Thank you for your help!

@Llewelyn A. Thank you, that was very helpful!

There is a commercial property in my area i have been doing research on because i am interested in purchasing it, however the owner is known for being high on his prices and borderline dishonest with his valuation. He sent the price he is asking for with the following information on how he got it. I'm pretty sure i came up with the correct value but i have never purchased a commercial property before and could use some help on whether he is being honest with how he calculated the price. I'll put the information he gave with some important notes that i think you would need to know in parenthesis. The information is as follows...

Property 

Unit 1: 1300 sqft Base Rent- $18,000 annually

                                        - CAM $6,864 Annually

                   + additional rent  $5,699 (he was unclear what this was but it seems to match up with the contracted rent increases for the unit

                                                                over a 5 year period, however this amount is over the entire 5 year contract so the annual average 

                                                                would be $1,139)

                  = $16,835 PA  

                       $1,402 per month

                       $12.95 per sqft

Vacant Space 55.67%

Base Rent Unit 2: (This unit is currently vacant and hasn't been rented in over 5 years! In addition Unit 1 is currently rented by the company work for, Edward Jones, who put $80,000 into that unit to bring it up to good condition. The other side needs lots of work, if i do a per sqft comparison to unit 1 vs unit 2 then i'll have to put $94,000 into unit 2 to get it into similar condition. I think i can do most of the work myself in order to cut this in about a 1/3rd but regardless it needs a lot of work to compare to unit 1.) 

                              Base Rent: $22,055

                            - CAM : $8,976

                           + additional rent: $7,181

                       = $20,220 PA

                           $1,685 per month

                          $12.80 per sqft

(1)  additional rent (other then listing the expenses, i'm not sure what the other information is supposed to mean)

-Taxes $10,263.97

-Insurance: $1,242.00

-Common Area Maintenance

-- Landscaping $895

-- Snowplowing $500 (he has a guy that does this so this number will be very low)

(Expenses he didn't list in this estimate was, Propane- $1940, Electric- $1,913, Water/Sewer- $460)

Below that info he had this:

$1,395                            

________

$12,900.97               $12,900.97

    x 44.33                      x 55.67

__________                  ___________

$5,719.00                   $7,181.97

Value:

A: Edward Jones:    $16,835

     Vacant                 $20,220

                                  _________

                                 $37,005  @ 8% Cap = $463,187

B: Entire Building: 3,000 sqft @ $225 psf= $675,000

So as far as i can tell he seems to be offering the building for $463,187 based on an annual income of $37,005 @ 8% CAP. However, the income in not $37,000 its only the income from unit 1 which he has at $16,835 which at a 8% CAP would be an offer price of $210,437. But i'm not sure that he calculated the income from Unit 1 correctly ether and this is why. the Base rent for unit 1 is $18,000 minus the CAM of $6,864 which is the part of that rent separated for utilities and upkeep which brings the rent to $11,136. Now at this point he added "Additional Rent" of $5,699 to the annual income of $11,136 which i can only imagine is the contracted amount of increased rent over the next 5 years which is about 3% annually (its with my company so i've seen the contract). But if that increase in rent is realized over a 5 year period then the annual amount would average $1,139 to total an income of $12,275 Annually. If this is the income then doesn't that mean that the offer price @ 8% CAP would be $153,437? I could use a detailed explanation of whether he is correct or if i'm correct and why so that i know how to better analyze deals in the future as well.

       One last peace of information that i feel is important is that this building had been vacant for several years, over 5 i believe, before Edward Jones (the company i work for) came along in put $80,000 into our 1300 sqft unit and started renting it for the amount shown above. He has been unable to rent any part of this building to anyone else and has been unable to sell the building itself as well. There are other details of how i plan to make it profitable but as for the value of the building this should be enough details i think. 

      I know i'm asking a lot but any knowledgeable help is greatly appreciated and i need the info in a semi timely manner because he is waiting for a response. I could really use any and all help regarding this deal and would love any advise people have!

Thank you again,

Dan Willis

      I know this post is a year old but if your still looking for properties i have a bit of advise, I've seen a couple of your posts and i think you are cutting yourself yourself short, i'll explain what i mean. I'm still pretty new at investing but i feel that i have a pretty good grasp on how things work, and I present that when i'm looking for deals or help. Your posts sound like a job interview, which is great if your looking for a job, but your not, your looking for a business minded person to take time out of his/her busy day and come and help you. 

I've read your profile and if what it says is true you have gathered a lot of information through books and seminars. Thats all that you need to get started, i still don't have a "mentor" for myself. I only read books and gathered information from bigger pockets before i started my first rental which was a SFH that i was currently lived in. I fixed it up with about 20k, which was way more than i needed to because i was new and over paid for just about everything a person could over pay for, and it has paid over 20% COCROR for the last 2 years, in one year i'm going to sell it and the equity will help me upgrade from one SFH to a 6-10 unit complex based on the market in YOUR area. All the information i needed was in the books i read and on bigger pockets, ya it would have been nice to have some one stand by me and pat me on the head as i move forward through the project, but when you boil real estate down to its most basic element, its math. If the math adds up, you have yourself a good deal. Thats why i don't think you need a mentor to get started.

This doesn't mean you don't get advise from other people, as you get started your going to build relationships with some amazing people who can and will be willing to offer advise, but you have to get started. I'll give you an example, i have a management company take care of my SFH and thats because she is a lot better at it than me, she has more than paid for herself. Any time i have an idea regarding my investment portfolio, i call and get her opinion to see what she thinks and her feeling on it because she has her own investments that she has managed and flipped for the last 15 years. So i suppose you can say she would be my "mentor" but that relationship didn't start by me knocking on her internet door asking if she would be my mentor, lol.

      I could go on and on and before i have a book here i'll kind of wrap it up, but these relationships took time to build and it was only after i started myself that they started to grow into something. Just get started with a deal, i used the house hacking method for my first deal, i felt it was much safer in my situation because than i still only had one mortgage, but you have to decide how your going to get started, you just have to start! I sent you a request, if you have any question on where to start i would lend a hand. 

@Jo Zhou

If this were my property, the first person i would question would be my PM. I have a property that is almost 3k miles away but i have an excellent PM who also inspect twice a year and requires that they have renters insurance. I just found out that one of the ladies in my SFH is starting to horde a lot of things, at this time its not damaging but never the less she let her know that if she wants to continue to be there she will need to get things cleaned up, she also followed up with her a week later to find out who she has hired to help her (because she is rather large and out of shape and could not do it on her own) and verified the person was in fact going to help. That being said, I pay my PM to inspect my property twice a year, its not part of the standard services, but i prefer it this way because i feel like they try harder to justify the expense, its only $30-$40 per inspection but i feel its well worth it, as i'm sure you understand why. I would consider looking into a new property manager.

The reason i mention looking into a new property manager is because if they are neglecting something as small as inspections than they might be neglecting other issues such as whether your rent is competitive with the market. I had 3 PM's in the area to look into, I called all 3 and 2 answered the phone right away and the other did not and i had to leave a message. The other two came out very quickly, that day, and looked at my home and both told me that they could rent my SFH out for about $800-$900 and were very nice. I didn't get a call from the 3rd one until late that night and was a little frustrated by how long it took, and i had already made up my mind on who i wanted. My wife however told me to be patient and let her come by, which was a couple days later which i didn't want to wait for, and the experience i had with her made the entire wait worth it. First off i could tell within 15 minutes of meeting her that she was way more knowledgeable than the other two by far, in addition she said that she could rent my property out for about $1,100, possibly more. The result was that she rented the house out for $1295 a month instead of the $1,100 she originally thought. In the first year the tenant wanted a new porch which she negotiated a price increase of $140 upon renewal, totaling $1,435 for the second years rent and got the contract months in advance. This year on renewal she found the inspection issues that i mentioned earlier but has it already taken care of and is working on getting a renewal price of $1,499 because markets have increased.

        My point is, my PM is working so hard for me that i sometimes wonder how she manages to help everyone else just as well. I'm not even close to her biggest client, but i feel like i'm her only client by the way she treats me, i feel like that is something you should be looking for, not a PM that's like "oh sorry about the 20 year pile of destruction your tenant left, don't worry because it doesn't happen often." 

       I hope this has shed a little light on what i look for and has been at least a little helpful, best of luck to you and i hope everything improves, don't give up on your dream!

Dan Willis 

@Rich Hupper absolutely, glad i could help. Sorry it took me so long to respond, I've been really busy. If you have any questions send me a message, I'm a Financial Adviser for Edward Jones so if your to busy to manage you stock market investments or if your just looking to free up some more of your time let me know and i'll see if its something i can help with.

    Sense its been so long how has that webpaged worked out for you, have you had any time to look at it? 

@Llewelyn A. Thats a good experiment to try, especially if you were able to use that to justify a higher price, that might be a fun/interesting/possibly beneficial experiment to try. 

Thanks everyone thats great!

@David Faulkner This webpage is all about sharing information and meeting other investors and like minded people, if you have information to share thats wonderful but just instigating people doesn't help. If you have anything to share with me i'm all ears. 

@Ned Carey Thank you that makes a lot more sense, the Cap Rate is there to show me some insight on how much the building could be worth while COC return is how much profit i'll actually realize after financing the property. So Cash rate is just simply a tool to show value, and/or risk, not necessarily a representation of true net cash flow.

Thanks I greatly appreciate it, if i missed anything or got it wrong please tell me, otherwise thank you very much and have a great night.