All Forum Posts by: Evan Polaski

@Dave Vona, having worked with a couple of the third party verification companies (verfiyinvestor.com and parallelmarkets.com) when being verified by income, they will accept any formal tax form.  W2, 1099s, etc are sufficient for these companies to confirm income, in their eyes, and do not look at pass through losses.

They will accept 1040s with income down the AGI, as well, if they shows a 200/300k income for last two years.

Net worth required verifiable assets and a credit report to confirm liabilities.

@Mario Hernández

1. Check zoning to confirm all uses are legal on this property.  
2. You will certainly want an environmental phase 1 and given current use, a phase 2.  This alone may be cost prohibitive given the price.  But auto shops, particularly "backyard" shops are generally not the most careful with their used oils, brake parts cleaners, and other nasty chemicals that could be a real issue for your tenants and ultimately, you, the owner.

3. Confirm all rents and estimate expenses.  Mansfield = snow.  I am assuming you are responsible for all snow removal and landscaping.  You have tax bills and insurance (can you even insure this property with the various uses). Maintenance of driveways, given the heavier use due to storage, auto shop and business.  

4. Are you even able to finance this property given the various uses?

5. I view this purely as a cashflow play.  Granted, I don't know this property or the Mansfield market, but I can't imagine there is much room to move rents given the hodge-podge uses on the property, and there are not many buyers that want to buy a single family home that also has storage and autoshop on the same property.  So, assuming the uses are even legal, and the property isn't posing an environmental threat that would require expensive remediation, you have to have your incomes and expenses buttoned down and make sure you are happy with the return you are getting from cash flow alone.

@Mohamed Youssef,

I agree.  Like any asset class, there will always be tenants that seemed great, but then are not.  I.e. Medical office building is great until you end up with a doctor whose primary client base is medicare, and medicare gets cut.

Generally speaking, but certainly not universal, retail space has been under developed since the Financial Crisis. 

https://www.cbre.com/press-releases/us-retail-market-faces-2...

I know this may not hold entirely true in every market and every sector of retail, but as noted, in good economy or bad, people will buy groceries.  In good economy or bad, people will need to get their haircut (and most will not do it themselves).  

Every asset class has its own risks, and especially if you are going to be active in it, I believe you need to focus on one and learn all the nuances of it over time.  

@Hudson Brannon, while I am not a KC investor, as others noted it is so very hard to give you any feedback of value.  As a builder once told me when I asked him, "how much does it cost to build a house", his response was "how much does it cost to buy a car?"  A rusted out 1990 accord can go for $500, but it runs.  Or, you can buy a $40mm vintage Ferrari.

Your idea of full rehab, slight rehab, and cosmetic is likely different than most people's.  

Cosmetic to me still entails all new kitchen and bath, full repaint of walls and trim, new light fictures, tile... basically anything you can see is new and modern.  But I am likely not needing to touch the mechanicals or major systems, so roof, gutter, windows, siding are all in good condition, floor plan works, so no moving walls or plumbing, electrical is modern and outlets and covers are white.

Slight rehab: well that is basically cosmetic + maybe a new roof is needed.  Or HVAC is needed.

Full rehab is down to studs remodel.  Typically, in my mind this means the only thing that is untouched are the structural exterior walls and some of the framing and foundation.  New windows, likely new siding (or at least repaint), new electrical, plumbing, likely moving walls, new flooring throughout, new drywall, new roof and gutters, etc.

@Dana Brix, no straightforward answer here, although I tend to align with Rick.

My initial thoughts are: was deal off-market or listed? If listed on MLS, then BFF realtor that brought you deal deserves her buy side commission and likely getting the sale side, I assume. Honestly, there isn't much additional value in that role, if she simply brought you a listed property. If off-market, then that is different and worth more.

Typically, I will just pay for contract labor, even if it is a "friend".  I.e. our last flip, I built the slat wall up the stairs, the feature wall in living room, installed the under-counter microwave.  My wife and I had partnered with a friend on this deal.  I bid those jobs and the partnership paid me.  This way, when I built the slat wall for $2,500, I made $2500.  Since our split with friend was 50/50, if I hadn't billed it, I would have effectively done $2500 of labor for $1250, which I wasn't willing to do.

But, at the end of the day, I mention this as a simple point to bring up with your BFF/fiance, but I also value friendship and given this was not discussed ahead of time, and I assume you want to keep these people in your life, while you are probably the one losing out the most here, I would write it off as cost of education, and next time you make sure before any work is started, you at least have a set understanding of how things will flow, financially, and then draft it all up into an agreement before you actually start the project.

No experience with this.  Here is another forum, started a while ago, with last post a year ago.  https://www.biggerpockets.com/forums/12/topics/897773-blair-...

Just some other points of view.

I would add necessity-based retail.  Typically, this is your grocery anchored shopping centers in middle markets.  Think Publix/Kroger anchored, dollar store as junior anchor, a great clips/super cuts, maybe an inexpensive mexican restaurant, and budget clothing store, like a Rainbow or TJ Maxx.  

While clothing and restaurants are generally in the discretionary spending, when you are at the budget end of things, even in a recession, eventually you need some new pants or don't want to eat at home, but also don't want to break the bank with a nice restaurant.

@Alan Verde

In theory all of this checks out, depending on your return requirements.  But, a couple notes:

For many people, a Class A property means new(ish) construction with all expected amenities available (clearly a 2-4 unit will have different amenities than a 200 unit).  As such, there is often nothing really to do to common areas or landscaping, let alone upgrade kitchens and baths, to improve value.  Maybe you mean Class A area, but Class B property, which in theory would offer these opportunities.

As noted a 4 unit is more likely going to be valued based on other 4 unit sales in the area, rather than your rents.  That being said, having nicer finishes will impact value if you did find one that you were able to upgrade over time, just like a remodeled single family sells for more than an outdated single family, and those upgrades often allow higher rent, so you still get some return in value for improvements.  But, if you are truly looking at a, say, 3 yr old property in already great condition, then raising rents, if possible, will generally not impact your value.

Buying cash, as noted, can be a risk, but it depends on your personal situation.  If you have $600k of cash sitting around, and you buy a property for $300k cash, while it may not be what many people do, I could consider that fairly low risk.  If you only have $300k to your name, and you put it all into the purchase of the property, then you certainly have a lot more risk.  Most people need loans to buy properties, which is one reason "everyone uses loans".  But, if you look at the asset in a silo, many "Class A" 4 families in good markets are selling for very high prices.  Typically, where taking a mortgage at purchase hurts your returns: i.e. if your unlevered yield is 5% and you borrow at 7%, you are paying 7% to earn 5%.  That does not help your returns, it hurts them.  But, there are often other factors, beyond the short term financial returns, at play that cause people to take on negative leverage.

And most importantly: raise rents to improve cash flow.  While this is possible, the real factor is how much can you raise rents and how quickly.  THis is often where renovations come into play and buying older properties.  As noted above, for most people, a "class A" property is already modern.  As such, while rents can be increased over time, in most markets, those increases are 5% (at most) per year.  But some properties and markets are seeing rent declines.  So, just assuming you can raise rents can make for some big mistakes.  This is where both macro-economic effects and local economies have a big impact.  At the end of the day, you have almost no real control of rent levels.  You can buy in areas that have put historic tail winds behind you, but if a new property with 300 units opens up down the street and they decide to slash rents and provide concessions to fill their apartments, you will be stuck having to do the same.

@Richard Anderson, I do not have personal experience.  But, just a comment on "don't have to worry about repairs", the same logic can be applied to investing in residential condos.  HOAs "handle" all of the repairs, until they don't.  Don't get me wrong, some condo associations are great, stay well funded, and manage the common areas as the condo owners would like.  

And, to Chris's point, every investment has its own set of risks and rewards.  Generally, people tend to have personal biases towards what they are doing.  Maybe this person used to own a business that rented from a condo owner.  And therefore he started buying them.  Other people think it is better to develop office condos and sell them off.  While I always like hearing other people's ideas, and some will turn out to be worth pursuing, one person's excitement, to me, is only valuable to plant a seed and start looking more into the opportunities, and studying the risks.

Things I will note, depending on what you are comparing to: office investing is generally some of the least active management.  Typically, at most you will get calls during office hours. Similar to industrial.  The typical office tenant is fairly light on their space, i.e. professionals tend not to be moving big heavy things around, banging into walls, etc.  Alternatively, not everyone is looking for office space. In my experience, office condos tend to be on the smaller side, and smaller companies need smaller spaces.  They can be very hard to divide into multiple units, and since you likely only own one, you cannot expand into adjoining units.  So you are sort of limited to your set sq ft.  Smaller businesses, typically, do not have the same financial wherewithal of larger tenants, so economic shifts disproportionately have an impact on smaller companies.

@Ryan Schaefer

I always look at the long term goals, first. Do you want to own multi-family? Management of MF is vastly different than commercial space. And even with PMs, with only 10-12 units, you are likely working with the same PM groups that will do SFR and small multi's, versus the (typically) more professional large MF management groups that will only take on 100+ unit properties. In the SFR/small multi space, the best I have heard is "my manager is fine".

But assuming you are willing to manage yourself or deal with the PMs, then it simply comes down to what's the additional cost to build, what is the additional cash flow you can expect, and is it worth it to you?

Adventures in CRE has a mixed-use model you can buy for pretty inexpensive, if you simply need a cash flow model to put in inputs. But the harder part will be determining your actual inputs to use. Market rents, market expenses, loan terms (both construction and long-term loans). You will run into allocations of NNNs, and what can be billed back to the dental practice and other retail tenants, and what needs to absorbed within MF allocation, etc. Nothing is terribly difficult, it is just making a lot of calls to understand what the inputs should be, validating them, and plugging them in.

And lastly, like others noted, if I could afford to do this without a partner, without taking on too much financial risk, for me, I would do it myself.  Adding investors adds more complexity in the whole process.  But, at the same point, I imagine just the construction cost of 10 apartments will add $1.5-2mm in additional cost, which in theory means $400k, minimum, of additional down payment.  For many that is not an investment amount available to put into a single project, and if that is you then you may need to seek out partners.  I would focus on other dentists, who typically are fairly high earners, see the value in owning their real estate, and likely already within your network through your wife.