All Forum Posts by: Oren K.

Mike,

Absolutely correct.

The co-tenant that left did the right thing in informing you that they were leaving, would continue paying their share of the lease until the end BUT would not be responsible after the end of the lease.

The remaining tenants, assuming they want to stay, must now qualify on their own and sign a new lease.

Oren

Scott,

There are lots and lots of people you can engage to do studies; don't recall what the cost are. A bit of Google searching will bring up lots of options. The basic idea is unless you have deep experience and before investing 100's of thousands or even more, spend a few K to gather basic data and get 'expert' advice. Note that just because someone calls themselves and expert does not mean they are.

There are two basic forms of studies; a desktop and onsite. The desktop looks at demographics, traffic, 1, 3, 5 Mile competition, etc that can be gathered from internet, phone calls, etc and basic income proforma based a bunch of assumptions. The onsite study has provider traveling to the location, going to the local competitors to gather more info and a more detailed build out plan. The onsite can usually be used as the basis for a financing application.

Hope this helps,

Oren

@Warren Marshall In calculating the recapture, the sale price has nothing (formally) to do with it. It is the depreciated value deducted from the original purchase price (all in - Legals, Closing, Lenders fees, etc.).

Yes - Generally segregation is only done on 'larger' properties but there is no firm size. It becomes a cost / benefit analysis as it costs $X to get it done and it provides a benefit $Y. If it is only marginally positive, a lot of people skip it as not worth their effort. I'm surprised that you can't find someone.

Oren

@Luke Trovinger - Yes I also will be keeping them liquid but was hoping that there may be something out there that, for a business / entity account, pays something more then 0.01 % or whatever. If I took the funds into my personal name, it can earn ~ 0.40% or so but by leaving it in the company it gets next to nothing.

@Paul Moore - I have read a bit about PPR in the past but not done a deep dive. Thanks for the reminder. Need to do some DD on it.

@Warren Marshall

I don't believe there is a minimum or ideal time that gives you the best 'benefits'.

Calculating the recapture amount is fairly straight forward;

  Original Purchase Price - Current Depreciated Value = Recapture Amount

Your accountant should be able to provide you with the #'s very easily.

As an example;

Purchase an office building for $1,000,000. Over several years the depreciated value becomes $850,000. Recapture amount is $150,000.

As noted in other responses, you received the benefit of NOT paying taxes on the $150,000 over the years so now it is time for CRA to 'catch up'. The marginal rate used should be the same, unless the law has changed, in both cases so that's a wash but as you mentioned above, you had the use of the money not paid in taxes over the years.

A couple of notes to also consider;

- Some expenses (e.g. new HVAC, computer) also have their own depreciation schedules. These items are NOT subject to recapture as they generally have fixed / short life time.

 - Land is NOT subject to depreciation so if when you purchased the property and 25% (relatively common allocation) was put to the lands value ($250,000 in the example above) it is considered to have the same value at sale.

Hope this helps.

Oren

Looking on some advice / recommendations regarding where to park funds from the imminent closing on property I own. It has been an interesting ride with a lot of learning including help from Bigger Pockets.

I am looking at redeploying into several syndication or take on another 'project' property but do not feel the need to rush the decision as I do DD on different options. Will have several hundred K available net when it is all said and done.

Clearly want to earn as much as possible and retain flexibility to have it available on 30 days notice.

Any thoughts?

Alexander,

I hired a PM to manage my properties so they have their own systems / procedures. If I was self managing, it might be different as I would probably use BP as a starting point to understand the suppliers for different services. As they are 'sponsors', it is marketing

Second that networking is by far, for me, the most useful feature of the site. The wealth of knowledge / experience that exists here frankly can be overwhelming. As well, their willingness to share, provide advice, encouragement, etc. goes a long way to reaffirm the 'good' in people.

As to the analysis tools, not a bad starting point but you should know / learn enough to craft your own if only to get your hands 'dirty'. Nothing like building your own spreadsheets to force you into a deeper understanding of the financial metrics that are important to you.

Good luck,

Oren

Joe,

I think you are missing the point that Joel is making and it all boils down to running the numbers. Looking at your last post, you are proposing purchasing $5,000,000 and putting down only $1,000,000 in equity.

Firstly, banks simply don't lend 80% LTV on commercial investments; your personal residence yes but not investment.

Secondly, even if they did, it would not be on 'smaller' investments / protfolios. Lets face it, for banks, $1,000,000 is still 'small' in their world as it takes about the same amount of work to do the paperwork / DD on almost any size commercial loan.

Thirdly, even if they did, they would require other security.

Fourthly, quality NNN investments do not yield 10%.

Fifthly, even if it does generate an NOI of 10%, the loan is going to eat up much / most of that (leaving DSCR aside) leaving little if any free cash flow before taxes.

If you could find the kind of opportunities you are describing (Credit Tenant, NNN, Levered, 10% Free Cash Flow), there would be a lineup round the block looking to partner with you (including ME! :).

Steve,

The answer is it depends (I hate that answer;).

It depends on the amount of time you can commit, the quality of the property you purchase, the type of tenants you have, if you self manage or outsource, how organized you are, etc.

As with most things, you should walk before you try to run so I would urge starting 'smaller' and in a few years moving up if you still want to. Starting smaller has several benefits; if you made a mistake, you did not go all in $ wise, not as much demand on your time, lets you figure out what 'systems' you need (for the property and yourself), etc

Best of luck,

Oren

Joe,

Attached is an image from a spread sheet I quickly put together based on your information and the interest rate input from Joel. Joel knows what he is talking about so I would also 'listen' to all his other points.

As you will see, while the lease does cover the mtg, it does not leave much of a return on your equity. I have not put in other costs that you should consider; accounting, taxes, etc. As an aside, you are also building equity at the rate of ~$3,200 - $3,500 per month depending on the rate.

NOT trying to give you a hard time but I would be more worried about not being able to answer / figure this out yourself. This kind of analysis is very basic. Learning how to 'run the numbers' should be in every investors tool box. Either that or a 'trusted' advisor / agent.

I would urge you to learn Excel before making any investment decision.

Best of luck,

Oren