All Forum Posts by: Ken Jernigan

I was involved in a deal like this a few years ago, and it was not possible to get the lender to order a new appraisal. It would look like they're appraisal shopping to auditors. Best we could do was ask the appraiser to reconsider, which in the end didn't add any new value. We ended up starting over with another lender and got the deal done.

You might want to consider that on a cap rate basis your deal looks a little expensive. If your NOI is 50% of rents, then your cap at $500K is sub-6. A more realistic 8 cap would put the price at $360K, closer to your appraised value. Your NOI may be higher or lower and the market cap for this type of property is locally driven. These are just assumptions.

If you haven't already, I'd get the last three years tax returns from the seller to verify income and expense numbers. Then try to do a valuation off that.

@ScottKrone Do you have a ballpark number for conversion? I know it pretty much depends on the building, but we're looking at a 30K square foot conversion of furniture store and would like to have a baseline. Then make adjustments for building condition.

Brokers don't work on salary. It's commission only. You may get a draw against future commissions, but most brokers are one-man bands.

You need to do a pro forma income statement to project an NOI. That'll tell you if the price is a good deal or not. Usually boat/RV storage doesn't yield like traditional units. Be careful of mechanic's shops. Some folks had the habit of dumping spent oil and other nasties down the drain. If there's contamination, no lender will touch it until it's cleaned up. And the environmental liability follows the new owner.

Yes, looks like you need to do some real due diligence to make an informed decision. For starters, you should get income statements for the last three years and the current rent roll. Insist on signed copies of tax returns. What is the economic occupancy vs the physical occupancy? Are there tenants who haven't paid in some time or are actual rents below posted rents? How do the rents compare with other self storage in the market? You should assess the likelihood of increasing rents and occupancy. 

Analyze the operating costs. Do they pay themselves a management fee? Are there any personal expenses like car lease, cell phones, etc. included? Be mindful that real estate taxes are likely to increase as a result of a change of ownership. Will the facility need system improvements like online ordering and pay to make it more attractive? Can you add services like moving supplies, insurance, U-Haul?

Is there any deferred maintenance? How old is the property? Does it need a roof? Are the doors in good shape? What's the security like? Will you have to upgrade anything to improve the occupancy? What would be the cost? Does the property have any environmental issues?

Assuming NOI of 50%--it may be higher or lower for this particular property, the $650K ask is about a 7 cap. The investment group I work with who targets third tier markets looks for an 8-9 cap with reasonable prospects to value add up to a 10-11. However, this all depends on your local market. This is information a good buyer's agent should be able to give you. You can PM me if you want more info on how we look at properties.

Not sure I'd be that enthusiastic about adult day care. I've financed a couple of these in the past, and the business is basically day care for adults with minor disabilities. Business turns on referrals from hospitals and doctors and cash flow on reimbursements--private insurance, medicare, medicaid and the va. You need the connections for referrals and someone who can manage the reimbursement system. On top of that, this industry is heavily regulated by the state.  Besides, 1000 feet is not really enough to run a profitable day care.

Sounds like you need to decide whether you want to run a business or be a real estate investor. If you run a business it's going to take all of your time, leaving little to develop real estate. And it sounds like the pack & ship needs a little cleaning up.

Self storage in larger markets, and some secondary ones has gotten too expensive. For a deal to make sense, it has to sell for around a 9 cap with room for significant value add through improved rent/occupancy. 

Normally this means mom and pop operations in third tier markets. Sometimes you can find these for less than new construction cost. You don't always need a person on site with online ordering and payment.

The SBA has attractive financing options for smaller self storage operators just starting out. You can normally get in with 10%-15% down and include any property improvement costs.

You might try the local Partnership for Children. They work with child cares throughout NC. Also contact the NC Dept of Health and Human Services. If you operate a child care, you're going to need a license. They assign licensing consultants who may know of child cares for sale.

If you don't have any child care experience, I'd urge you to get a job in one. The business is not for everyone. Also, scale is important. Not many make money until they get to 80-100 slots, running multiple shifts and summer programs. I've financed a bunch of child cares in the past and run right, they can be real money-makers.

I'm in Wilmington, NC and the condo market here is definitely the most volatile. Beachfront maintenance costs are high and wind and hail insurance almost not affordable. Beach erosion is taking its toll on several buildings in the area--literally falling into the sea. The feds aren't picking up beach renourishment anymore nor channel dredging.  This will fall to the locals, meaning higher property taxes. Hate to see what insurance premiums will be next year after Harvey and Irma.