All Forum Posts by: Luca Mastrangelo

@Thomas S.   10% annual return investment fund return claims are pretty optimistic.  6-7% is a more realistic # to use.  Future gains expected to be less.    While I agree this investment isn't optimal , it's been good to me.  Ive been steadily raising rents to get closer to the 1% rule and am not far off at this point, will be $2500 starting July 1 which is pretty close to the value of the property.  What scenario do you think I would get burned in?   I've taken very good care of the property and done a lot of maintenance, there will be more in the future, but the property runs well.  I dont see a lot of downside risk ahead with this property. It wont double in value but im certainly not in a high foreclosure depressed part of the country.  Its more opportunity cost.

@Jaysen Medhurst - agreed,  my cash isn't working as hard as it could.  This coming year rents will be $2500/month which would support a $250k sale price at a minimum, not horrible but also not amazing.  i just laid out expected profits over a 10 year time frame and it looks like holding the property and having my tenants pay down the loan and then generate profits for me is the best scenario.  If i sell today i would clear about $150k, if i invest that into the market and earn 6%, id be at $284k in 2030.  If i just keep doing what i am doing, I will have liquid capital of ~$137k plus the asset of the house it self which i assumed woudl appreciate at 2%/year and be worth $323k in 2030.  

So while selling will give me the most available capital now, it doesnt look like i will get a better return than leaving it where it is now.  What am i missing?  Yes i know i could use the proceeds into a multi family elsewhere in the country that could yield 10% but im not motivated enough to move in that direction at this time.   Can you share with me some of the types of properties you might consider in this situation?

I dont like Groton or New london for rentals. There's a huge transient population with a large supply of rentals so finding good long term tenants will be a challenge.  You can def make it work but you'll have a lot of turnover, wear and tear and upkeep on the properties.  The reason i picked Waterford is because its next to New london and has a very tight supply of multi families, i wanted easy long term tenants.  I would consider other towns in that area like Mystic, North Stonington, Pawkatuck , Easy Lyme and Niantic if you can find properties that support your model.  Feel free to DM me any specific questions about the area, i was there for 8 years.  

 Hi Jaysen - thanks for the feedback. If my tenants can pay the new loan for me why not take advantage of that. The property might not meet the 1% rule , but the rents will cover all expenses, a property manager and money set aside for repairs.  Rents are $1100 and $1250  about to go up to $1150 and $1350  starting in June and July.  

Why not cash out refi , best of both no?  

If I were to 1031 I'd want to get something closer to me. I like to be able to drop by and see what's going on,so investing in something in the Midwest isn't my cup of tea. I've been passively looking at commerical opportunities on cape cod but this market is extremely challenging with an much regulation, historic preservation, flood zoning and septic issues.  With that said Ive been eyeing Worcester as a potential candidate city to get a multi family in, but I also would be fine to just take my proceeds, buy vtsax and get 6% growth without doing a thing. 

On a side not , I think 2% is a more appropriate metric to use for this part of the country for casual investors, but that's a different topic. 

Oh. House is in Waterford CT near the RI border. I've had 100% occupancy since I owned the property. 

Hi everyone, need some help here.  I currently own a 2 family property that I will have paid off in a few years and starting to think about how to reduce taxes and maximize gains.  

Background:

• purchased 2 family (2 2 bedroom units) in CT as owner occupied in 2010 for $230k - financed with FHA loan at 4.5?% and 3.5% down payment
• lived there until 2015, rented 1F unit for $1000/avg over that time
• refinanced into a 15 year loan in 2013 at 3.875%
• rented both units 100% since then
• rents now cash flow positive about $400/month
• been doing capital improvements to offset income and keep net profits close to $0
• paid down a lot of extra principal over last 2 years
• currently owe $80k 
• valued at $260 conservatively, $300k optimistically
• Will finish loan in 2022 or 2023, i forget without looking at my schedule

I'd like to get out of the property since it's not returning that great of an investment relative to just investing that money in the market and earning 5%.  

1. first thought was considering selling it ouright but after capital gain taxes, realtor fees, paying back taxes on depreciation owed and losing the tax benefits of having a property i dont think thats the right move.

2. My second thought was to do a cash out refinance once I own the property outright and invest that money.  Put the property on autopilot at that time, get a property manager, cash flow $0 or close to it and setup a new 20 year loan.

3. recently i started thinking that with interest rates still low and expecting them to go up in the future, maybe i should be looking to do the refinance now, although it would be with less equity at this point vs in a few years. 

Ultimately, I'd like to have access to my equity and invest that and earn interest on that or use for other potential projects.  Im concerned that selling outright will yield me the least and has a lot of cons from giving up the tax benefits of having a rental and that if i just let this project run its course, ill have to start paying taxes on the additional income in 2022, since right now i can write down some of that against interest.

thoughts on how to maximize yield over say the next 5-10 years?

TIA

Working on having a GC take a look now. Any rules of thumb for $/sqft to build a blank space apprpved for a commercial use? Most likely uses would be upscale c-store/coffee/restaurant/ beer and wine.  Some or all of the above.  

Hi. I've been passively looking at mixed use commerical property in the upper cape area where I also live. I've been looking at mixed use that ideally has a possibility for food use and either office/apt rental opportunity too. 

There's a particular building that has the zoning for this use already established but would need a complete rebuild. Everything down to the studs, new septic,new electric , plumbing, heating etc. The whole 9 yards basically. I've roughed out some numbers but would need some actual quotes to further my business plan for this possibility. 

Can anyone point me in the right direction on getting some quotes for this type of effort?  Should I x-post this anywhere else?

Thanks in advance. 

Luca

 Charlie , thanks for the feedback. A couple things. 

1. I thought I mentioned it in my post but I would not be an absentee owner. I was planning on quitting my job shortly after opening the business and working full-time.  

2. I can appreciate the concern about coffee and competition. However I wouldn't be targeting Duncan audience. Look up tandem Bakery in Portland Maine. That's the kind of place that I go for coffee if available. Those are the clients I'm looking for. They want to be bothered if Duncan was across the street from my place.

3. Do you have any information regarding cap rates or retail price per square foot in the area specifically upper cape?

4. I'm in the Bourne area , and there's quite a few people who live in the area and work full time around this neck of the woods. There's also quite a few people that drive off you cape every day.  I should be able to capture quite a few of those folks as well. Again I don't think there's any competition for "good" coffee and that's what I would be selling. You can also research third-wave coffee that's another descriptor for what I would be doing.

5. Cumby's coffee is only a dollar too and better than McDonald's.

I want to buy commercial real estate as an investment with the intent of using some of the space to do something in the food space.  I'm on cape cod MA, upper cape specifically, where hundreds of thousands of tourista flock each summer but also live in a town that has enough year round residence and business that a food place can stand on it's own.  My first step would be coffee and expand from there. I currently work a regular well paying 9_5 job but would quit down the Rd once the business is launched and work for free/significantly less than I make now.  

On cape cod the zoning  for a cafe/food establishment is very challenging. Places that can support a restaurant/food are very difficult to come by because of septic and zoning requirements.

I've looked at about a half dozen places over the last year. None of them had the right mix of variables to get a coffee shop going.

A small +1800 sq ft bldg just had a for sale sign put up on it. It currently has 2 business with 1 year leases. Leases are 1100 and 1200/month. Taxes are $3800/year. Insurance is $800/year. One side is an antique store the other is a ductless ac showroom/installer. Bldg was sold to current owner in 2016 for $239k. Owner added $80-120k in improvement. Gutted and all new. New electrical, new windows , siding , roof , paved 14 spot parking lot. , New handicap accessible bathroom on both sides etc....

Owner is going to list at $429. I don't think he'll go less than $399 and maybe not even that.

Here's my plan. Need help. Poke holes and please point me in the right direction.

Buy bldg for $399k ish. I would have to get a commercial loan.  Since I wouldn't have a business in there right away I would not qualify for a small business loan up front. I would haveto take a commercial investment loan. 25% down and has to cash flow 1.25x ebitda. Using 5.25% and 20 year amoritization schedule the month payment would be $2021. I would plan on keeping tenants for the remainder of their leases and in August when the antique store lease is up move into that space. I'd like to keep the heat pump place for another year or two while I build out the business.

Doing just coffee I'd have to so about 150-175 people a day @$3.5/person. This assumes a $1200 rent for the space 2 employees at $15/hr and 25% cogs of revenue on coffee. Doesn't include any other revenue sources. Just trying to get into the ballpark of things. Location is A+ (right off highway with easy on/off) and the Cape in general and this area in particular is a food dessert. There's a a Dunkin or 2 and another bakery in a down town setting within 5 miles. Not to say there isn't any competition around but no legit good coffee and none as conveniently located.

In broad strokes plan would be to:

1. Buy now

2. Collect Rents trhu Aug next year

3. Continue working my reg 9-5 now while I finalize concept and shop for some used equipment

4. Work with town to get zoning in place. Won't be an issue. Has septic with grease trap and in the right zoning. Needs a waiver.

5. Launch coffee next Sept

6. Grow business and quit current job. Essentially buying a new job. I already have a 401k nest egg I can let mature for 10 years and retire from so money isn't primary motivation

7. Expand into other side of bldg when time is right.

My next steps are to figure out what cap rates are and what retail spaces rent for on a sq ft basis in the area. with that info I should be able to more accurately determine what's a good sale price for the building.

when I was looking into cafes/ coffee shops before, I read a lot of the facts about how many fail and why they don't work etc... I've lived in the cape for three years now, which is not a long time, but since I've been here I have noticed that there is absolutely no unique food options. I shouldn't say none but very few. The cape is about 10 years behind  Boston and Boston is about 10 years behind New York in terms of food and drink.  I don't think there's any ramen shops out here. No unique donut places either. One or two third-wave Coffee locations on all the cape. That type of stuff just doesn't exist here. I think there's a lot of pent-up demand for that type of offering. people are seeing that more and more and would make the stop if that's their cup of tea so to speak.

Tandem coffee in Portland Maine is the type of coffee destination that I seek out when traveling.

Good info/facts on cap rates that at least help frame the problem.

https://www.calkain.com/research_reports/net-lease...

After some feedback from the small business forum on Reddit and some more investigation  this is where I'm at: 

Biggest risks are over paying for bldg and zoning from town. I've talked to town and it requires a waiver but shoulsnt be an issue since it's not in a historic district and has the right septic system

Any experts with knowledge of Retail space renta on upper cape? Cap rates?

No other thoughts/inputs?

depending on the costs it looks like I would save ~71$/month and recoup costs in 33-57 months depending on closing costs.  Keeping the loan term/duration the same, i would save $10k in interest with the reduced rate.

Hi everyone, I am considering refinancing my two family in CT.  currenty in a 15 year @ 3.875%.  Refinaned 2-3 years ago down from a 30.  With rates so low I am considering refinancing again.  What's a hot rate on a 10 year fixed or 5 year adjustable?

Thoughts?

Thanks in advance.