All Forum Posts by: Mark Devereaux

Joel, Karen.  Thank you for the feedback.  I have my homework for the coming week.

I'm going to see about getting the info Joel mentioned.

Also, we own a 24 unit apartment complex in the same town, so it is where I live and work my full time job.  I will approach our local bank to see if they are interested in lending on such a deal and how that may fit in to our existing loan portfolio.  I have to make an appointment regarding other business anyway.

@Karen Schimpf, is it a financing hurdle with a clause in the lease allowing the tenant to purchase?  For me as the potential investor, it also seems to be somewhat of a hindrance. 

Thanks again, a few great tips that will help in the process of making a decision.

Mark

My wheelhouse is single family and multifamily properties.  I am looking to get into smaller commercial net lease properties.  The theory is to trade some of our built up equity for less intensive management.  This deal came across my desk a couple days ago.  I'm looking for good feedback and questions/concerns I should be raising.  The biggest concern I have is spelled out at the end of this post regarding the Lessee right to purchase during the term of the lease.  What do you guys think?  Are there better deals in commercial?  Thoughts, opinions welcome.  Here to learn.  Thanks 

List Price: $350,000

Advertised cap: 8.2%

Monthly rent: $2440.00

NOI: $28,740

Lease expiration:  June 20, 2020

Renewal options:  One, 5 year option remaining with rent escalation to $2600.00 per month

Tenant:  Single building; single tenant; Large Michigan based pizza, orange color; franchisee with 10 locations; not corporate

Sq feet:  3960       Year built:  1979

Lease type: NNN

Highlights:  National brand, retail corridor, 4 lane highway main road frontage, adequate visibility, signage and parking.  Surrounding retailers include Meijer, Home Depot, Family Farm & Home, McDonalds

** Haven't got a full copy of the lease yet; looking at the 7th amendment of the lease; current lease option is up June, 2020, option remaining is until June 30, 2025.

** Lessor agrees to reimburse Lessee $4664.00 for 1/2 the cost of HVAC unit

**  Lessee shall have the right and option to purchase the premises at any time during the lease; current price through 2020 is $419,000.00

I like the property for the location, the size of the building isn't overwhelming.  Not sure this is the highest and best use of the property, and I think I could lose out on possible re-development or re-sale opportunity with the Lessee right and option to purchase clause.

What say you?

Thanks for the input.  Much appreciated!

@Tony Hardy, we are looking within 30 minutes of 48867 zip code, Owosso, MI.  I'd be happy to take a look.  Thanks!

Mark

Doing a little more research, I found that the contract with the housing authority runs concurrent with the lease term.  Lease ends, contract with housing authority ends.

With a 16-unit, am I able to say 2 units would be Section 8 and the remaining will transition out of Section 8?  Or does the whole property have to be one or the other?

Thanks

I have a good lead on a building with 16 units, Section 8 housing.  Small, rural town near my hometown.  We already own a 24 unit, non-section 8 and have turned around the tenant base from not-so-desirable tenants to very good tenants.

We are not totally familiar with HUD/Section 8. Are there any lengthy contracts with Section 8 regarding the building? As the tenant base turns over and leases expire, would it be up to our discretion as to whether to continue units with Section 8? Or are we just bound by each individual lease?

We would like to buy the building right, transition from Section 8 to non-Section 8 into the future. 

Thanks for any input.

Get a new realtor.

They should be excited for you and work to get the deal you want, not the deal they want. Some realtors don't want to work with investors, find one that does. Find one that understands investing. Ask if they own investment property or have ever owned it.

My last 2 deals were bank REO's at less than 50% of asking price and I got a third one for 60% of asking price.

Check out www.landlordaccounting.com

I purchased the software for $99. It comes with a pre-loaded sample "company" set up. You follow the template, use the chart of accounts to set up your own accounts and customize it. The PDF instruction books walks you through examples of every kind of transaction you're talking about.

I have 2 rental properties and am currently working on 2 rehab projects. Pretty slick, run reports by property, keep track of loans, keep track of bills due, send rent invoices, etc.

If you're familiar with double entry accounting and already know how to run QB, this has worked for me. Send me an email, we can hook up and I will let you preview the 200 page instruction book that comes with it.

I bought a single family home, closed on it November 10, 2008. Bank owned, I knew the previous owner before the owner that lost it to the bank and knew the house. Got it for $15K, 224 in closing costs, $1000 in improvements and the renter signed the lease tonight for $575 per month for a year. I would live in this house with my family, so it's not some dump. Sold for $80K in 2004 (irrelevant, I know). All I did was paint the walls and clean the carpets!

I borrowed $13K from my 401k to make the purchase, the other 3 and change is my own. 401 loan is for 5 yrs at 5.5%, about 250 a month. Taxes about 1200, insurance about 525. Obviously this property is good cash flow right now, mechanical are solid and updated, roof is the worst will need repair within 2 years.

My original plan is/was to buy and hold this property, pay it off in 5 year then reap the benefits after. Today I was approached by another investor who basically told me to tell him what I had to have to sell it. I threw $42K out informally and he didn't walk away, but I told him I'd have to think about it. Am I freekin' nuts?

Cap gains are a consideration, future cash flows, future appreciation...

I think he will even work with me to avoid short term cap gains, do an option or something like that.

Our overall goal is to acquire a minimum of 10 properties and have them paid for within 10 year. I am also working on my first flip right now, which should net out $10K after tax.

Thoughts, ideas, yes I am freekin' nuts. Just a little overwhelmed by the opportunity to double our money in less than 3 months. :mrgreen:

I've been looking at a 16 unit building for a few months now. Price started at $440,000. The day it dropped to $300,000 I went to look at it and put an offer on it.

The seller represented the following in the listing:
$81,320 revenue
$26,220 expenses
$55,100 NOI

Which, of course, I didn't believe, so I forecast the following from what information I could put together. The seller would not give up tax return numbers before making an offer (I think I know why now):
$73,180 net revenue(10% vacancy)
$40,700 expenses
$32,480 NOI

After talking with my commercial banker, showing him the property and numbers, he told me the historical data was showing 9-10% cap rates for the deals he was doing. We applied that, came up with about $320,000 as a relatively conservative value. The banker ran our credit, looked over our personal financials and said as soon as we had a PA he would get the ball rolling for a quick approval. 90% LTC, 80%LTV at about 7%.

So we wrote an offer for $280, which was countered at $295, which we accepted with a 60 day inspection period and sole right to terminate. As a condition, the most recent 3 years completed schedule E were required. So we got the tax returns and this is what they are showing for 2006:
$61,107 net revenue
$45, 633 expenses (before depr)
$15,474 NOI

Today I requested all supporting documentation they have. This seller would not give anything prior to making an offer. I thought I did a pretty good job of estimating the conservative value.

Did I just make a huge mistake and should I walk away, or do I need to investigate these numbers futher and see why they are so different than what the seller's agent originally represented? There is only one vacancy right now and the seller's agent claims rents between $415-$430.

Would it be normal for a property owner to hide about $12K in revenue and overstate expenses by such an amount? Should I ask the seller that question?

I know you experienced guys/gals wouldn't have gotten here in the first place, but what would you do now?

That's why I posted here. I think you're right about the true carrying cost for the 6 months. I think I need to re-work those numbers.

You said it may have potential. What would make it a "go" in your book? What else should I be looking for?