All Forum Posts by: Mav Larson

I’m a sucker for early 20th century, brick 2-3 story buildings in downtowns though!

I own several similar spaces. What has worked for me was going to local farmers markets and seeking out vendors that are ready to expand into a brick and mortar. They usually have fewer resources though and even sometimes needed guidance on permits, buildout, etc. I've gotten 3 quality tenants this way: a bakery, a wood fire pizza food truck company, and a Mexican food truck company. The pizza food truck company uses the space as prep and storage area for their multiple food trucks and the Mexican food truck company opened an actual restaurant. There are lots of farmers market vendors in my area though - it was easy to find the ones that had the drive to expand. Not sure if your area has markets like that or not but good luck and hope this helps. 

If you have a bad feeling about the broker, and from what you've written I certainly would, I would try to back out of the deal and try to get my money back. It sounds like he needs cash for something else and needs your EM for it. If you still want the 9 unit, go with another broker. 

No legal advice, just my opinion. 

Why wasn't residential something you wanted to do but you think commercial is?

Just some thoughts:

- If you generally like the type of business, I'd probably work to make them stay, especially if the business enhances the property and will make it easier to rent the apartments up top. 

- In the past, I've signed onto loopent, in the for lease section, and looked at what other units are renting for in the area. I then would sign my tenants to something similar. 

- What I've done is just blame the lease on the bank. Let the tenant know that the bank requires at least a three year lease in place at this rent. I've literally used this line before: "The lending bank is being a hardass and I have my hands tied. There's nothing I can do. The bank requires a lease in place and at market rent. It was part of the lending agreement and they've already asked about it so we have to get this done asap." 

- I would think that a 3 to 5 year lease is appropriate for a local business. @Martin Z.is right, if the tenant isn't doing well, they'll just leave. And at that point, they won't have any cash for you to go after, nor would you probably want to.

- I also lease my spaces for slightly under market rent but in the lease make them in charge of everything inside of the exterior walls and roof. This means that they're responsible for anything electrical, water and plumbing to the meter, mechanical, and any interior modifications or maintenance. For the HVAC, I have something like: "Tenant is responsible for the first $500 of repairs or replacement to the HVAC system." I have some HVAC units that are 30 years old and if they break, they probably would need to be replaced. This way, the tenant would also pay $500 of the cost of a new unit. In general, the type of lease that I use is a Modified Gross Lease.

- I have mostly startups and local businesses on my properties. NNN wouldn't work, but the next best thing is that they're responsible for the repairs and maintenance of everything in their unit.

Hope this helps!

@Neal Collins I like the way you think. If I can get the mortgage payment down to $800 per month, would it justify paying such a high price? Either way, the more I look at the numbers, the less I'm liking this deal. 

@Justin R. Thanks for the tip about the opportunity cost. My goal is to have a certain amount of real estate income by 2025 and sometimes I get too excited about deals that I come across. Investing the $20,000 down payment and then rehabbing all four units plus the exterior seems like a lot of work for only ~$800/month. 

@William Hochstedler You have very accurately described the situation in this town. The only reason I think that this deal hasn't sold yet is because it's not listed with a realtor. Two 2/1 houses, side by side, located just 3 blocks away sold for $200,000 several months ago. I thought that was nuts. 

You ask what's not great about the neighborhood? The area just one block north is almost all owned exclusively by professional investors and developers. It's not that the neighborhood is not great, it's just that it's on a cul-de-sac that is just outside the traditional student area. Several of the buildings on the street have just been neglected by their owners - same as the one that's for sale now. Those two 2/1s that I mentioned above are located in the traditional student area. I believe the street is safe. Maybe the street hasn't gotten as much attention because it's not a through street? Not sure. 

Correct, it would be a traditional buy and hold. I own my own business which pays my entire salary. Everything I earn in real estate goes back into improving and buying. I can spend about 20 hours a week working in real estate investing. 

Why are the folks buying these rarely real estate professionals? It seems that they'd be an ideal investment for them. Are they usually too expensive? Don't cash flow well enough? Too small? Attract tenants that aren't ideal? 

Thanks in advance!

@Travis Lloyd You mentioned plenty for me to think about. Thanks for your input!

When I mentioned $15,000 of deferred maintenance, I was only talking about the exterior. The building does need new windows and some siding. The roof is only 6 years old. 2 of the HVAC systems are newer, 2 are older. I plan on doing a rehab as each apartment turns including replacing the older HVAC systems. 

More realistic exterior maintenance is $18,000 and each interior rehab is going to be about $11,000 (Like I said, they're in pretty good shape as is - mainly just updating). 

With these numbers, I'll admit it's pretty tight at it's current rent. But as each unit turns, I'll also rent them for $200 more per month at $700. The cash flow will be nice once all units are turned. 

I gave Michael a specific list of reasons above also. After reading that, what do you think? 

Thanks @Michael Le for the tips. Truly appreciated. The seller said he was very flexible so this is what I offered:

Sale Price: $210,000

Down Payment: $20,000

Terms: finance $190,000 for 20 years at 3% interest

Monthly Payment: $1053.73

Balloon Payment at 10 years.

Here's why I was interested in the deal: 

- The units are rented far below market. They could easily rent for $600 - $700 per unit. I'll do a little rehab when each unit turns. If each apartment were rented for $650, that would be $2,600 per month. I admit, it will be tight in the beginning, but there is upside potential in rent income. 

- Because it's near a major university, vacancies are rare. 

- The property is only a quarter mile from where my other commercial properties are located. 

- There is A LOT of development just blocks from the property including a new city park, a new student apartment complex, and a new children's museum. This property has the second highest zoning in the city. 

- When rental income is $2,600 per month, it will be cash flowing very well.

Are these reasons enough to be interested in the property or do you still think I should walk?

Hi Everyone, 

Thanks in advance for your advice/comments. 

4-Plex for sale near a major university. It's located just on the fringe of expensive student housing. This 4-Plex, along with several of the other 4-Plexes along this street, have been neglected for awhile. The university keeps expanding, student housing keeps spreading, and this area is in the path. So although it's not in that great of a neighborhood now, it's right around the corner from a great neighborhood and will eventually become noticed by other investors. 

This particular owner is retired, its his last property, and he's willing to do owner financing with only $20,000 down.

Here are the numbers:

Price: $240,000

Current Rent: $2,000/month (4 x $500)

Insurance + Taxes: $426/month

There's about $15,000 of deferred maintenance, and although very little has been updated since 1985, the building is in pretty good shape. With even a little rehab, rents could definitely be $600 - $700/month. The student apartment complex behind the property rents for $1,000/month.

The seller is flexible on the terms of the sale as long as I "don't try to low-ball him." 

Here's my question: I think I'm overpaying at $240,000. But with only $20,000 down, and if I can get the mortgage payment lower than $1,000/month, is it worth paying the $240,000? This isn't definitely not a steal. But it's owner financing, with only $20,000 down, and in a neighborhood that will appreciate as a bonus. 

Your thoughts?

What about someone who has experience with 4-Plexes as I have only done strictly class-B commercial up to this point.