All Forum Posts by: James W.

I would estimate higher for vacancy in a small town as there may be limited businesses looking for space in a small town.  It might not have vacancy now, but you need to estimate what the normal level of vacancy would be and get an idea of how much demand there is for commercial units in that area.  

I'm not sure if each unit has their own utilities, but four furnaces is a lot to maintain for one place.  

Make sure you really drill down your numbers.  I would expect to get a good return investing in something like that.

@Ola Dantis i don't know if I would talk about how amazing the deal is until he is able to add in the missing pieces and gets solid numbers.  The numbers are stated by the owner which can be completely wrong, so he needs to do more due diligence on the deal.  

I am looking at a place that is somewhat similar that is is not at all what it seems as the utilities are $2,100/mo and are paid by the landlord.  The only way the place I am looking at would be a deal is if it would be possible to pass back roughly half of the costs to the tenants in the form of increased rents or splitting utilities.  

As stated, add the water/trash/lawn/plowing.  A few more things to consider:

1. I would probably increase the cap ex estimate given the number of units.  It isn't like a single family home that has one family.  You will have many tenants, some of which will likely be harder on the place than others.  

2. You are not accounting for any vacancy.  It is not realistic to assume there will be none.  

3. If you plan to transfer the electric costs to the tenants, will the increase in rents and passing of electrical costs be supported in the area?

4. For property management, does the 10% include the cost of replacing a tenant?  If a place charges 10%, they might also charge 1/2 or a full month lease to replace the tenant as well.  Might want to factor that in with the estimated turnover you expect in a given year.

As far as financing goes, I doubt you will find a lender to do I/O for the first two years. Your DTI will not matter as much when going for a commercial loan either as they look at your DSCR. If your DTI is high, it can make your global DSCR look bad, but some lenders only look at the DSCR on a given property.

@Jedd Braunwarth I do not want to waste a lot of your time now since I don't have a specific need at this time but I'll be in touch if I have an application it may work with.

@Jedd Braunwarth do your submeters require wifi or in person visits to determine the usage by a tenant?  Is it possible to sub meter without going onsite to check useage or purchasing wifi?

I do not have a specific need at this time, but am looking at a property that is a no go unless I would be able to pass things back.  It would realistically require new mechanicals and better energy efficiency at the same time to make work as it would not be possible to pass back the cost at the current rate.

Also, does your company just do water or all utilities (water/gas/electric)?

@Joshua D. It depends on what your goals are.  Are you looking to be a landlord or use the cash to turn more deals?  Your level of capital and goals will likely dictate your options at this point.  

You are only worth a million if you can cash out for a million.  Until you cash out, the value will not be realized and can change for good or bad.  Not sure how long you have had them, but you need to factor in commissions and taxes on the income which will be significant if done at once too. 

Just curious, how do you manage the cabin in MN from AZ?  I'm assuming you had it since before you went to AZ?

The best advice I have is make sure you know your numbers before diving into a deal.  Make sure you know exactly what it will cost you, what market rents are and include costs for maintenance over time.  

@Jay Helms I think cash flow is a sliding scale in any market based on how high prices are now.  My B properties perform well with cash flow based on my acquisition price and numbers from the time of purchase, but I purchased them when the market was lower which helped quite a bit.  If these were purchased near FMV now, they would not cash flow well but I do not think the amortization of principal and appreciation would not lead to a great investment either.  

House prices are at an all time high in my area and interest rates are rising, which decreases purchasing power.  I cannot expect the same level of appreciation that I was able to attain purchasing these properties at lows and letting them climb over the last several years.  

As it is now, I'm sitting on some dead equity in my B properties and am looking to cash out on some of the equity (75% LTV) or possibly sell as I might be able to get a better overall return going forward with something else.

The areas I am looking at C properties in rent for 75% of the price of a B unit but can be acquired for up to 50% less.  Sure they will not appreciate as much, but if they are in areas with a smaller housing supply and a good level of demand, I don't think they will decline as much in a recession either since there will still be the need in that area.  The cost to build in C areas is not feasible at this time, so I don't need to worry about the big luxury apartment buildings coming into the area flooding the rental market either.  These properties tend to cash flow better and and it is easier to calculate a return with the assumption that it is not reliant on appreciation.  This is why I am looking more into the C tier.  

I'd be willing to guess many of the value add investors and syndicators that work on large deals are probably also investing in B-/C tier properties.  Their value add depends on how much they can increase rents and it is easier to increase rents by a larger percentage if the starting rent amount is lower.  

Definitely not normal wear and tear.  I would ask what happened and deduct.  The granite will likely be more than the deposit.