All Forum Posts by: Paolo Agostinelli

Check with your CPA to see what s/he thinks about this, but mine is anticipating that, aside from investing in a targeted fund, if I purchased property in an opportunity zone with funds from unrealized capital gains, I may just have to simply fill out a form that I would submit along with my tax return. Even though the process is still up in the air, they may be able to give you some guidance on how to proceed if you take action before the rules are nailed down and communicated.

This suggestion might not necessarily increase cashflow in the short term, but would increase the valuation of your property in the long run. I would consider re-evaluating the lease(s) for the tenant(s) who occupy the rest of the building when it is time to renew leases. If you're able to push off expenses that you're currently paying for to your tenant(s), even if you have to reduce rents by an equal amount, your property will appreciate in value.

Valuation is largely based on consistency and reliability of earnings. If the tenant is taking most or all of that risk, the the less risk you have to incur. That is why long term triple net leased buildings are valued greater than, and sell at lower Cap Rates than say, a building where the owner is paying for utilities, responsible for maintenance, etc even if both buildings generate the same NOI.

@Mandy Cohen While the opportunity zones were finalized and published in June, the IRS and federal government have not communicated the process of setting up and maintaining Opportunity Funds. According to CPAs and tax attorneys that I have spoken to, the IRS still needs to provide additional legal guidance on how Opportunity Funds are to be created and managed and are expected to do so before the end of 2018. Until then, we're all left to speculate, unfortunately.

Investment Summary:

Commercial mixed-use building with 8 total units.

Located in Waynesburg, PA, just 50 miles south of downtown Pittsburgh, PA. This large, all brick building, is centrally located in a very safe and popular downtown area, high traffic street with off street parking. Located in the center of the business district, next to the police station, and across the street from County Office Building, it is also a short walk to shops and local businesses.

Building highlights include:

• Building consists of five (5) apartments (3 - 2BR/1BA, 2 – 1 BR/1BA units) and three (3) retail spaces with current leases that include long term tenants – a non-profit, beauty salon, and candy store
• All units have separate utilities, with all hot water tanks recently replaced
• Private off-street parking in rear
• Coin operated laundry in apartments generates additional income for the owner
• Historically very low vacancy rates and quick turnover

Key Financials:

Price = $299,900

NOI = $30,599

Cap Rate = 10.2%

DSCR = 1.90

ROE (Cashflow/Initial Investment) = 19.35% (First Year return on cash invested)

NOTES:

1) NOI based on actual income/expenses and include market rents for 3 apartments that are currently under rented by at least $400/month total, very conservatively. Can very easily be brought up to market rents in next 12 month lease cycle in current condition.

2) DSCR is based on 25% Down Payment, 6% Fixed Rate interest, 30 yr amortization

Since the property is located so close to you, and you already know that it is vacant along with recent history, I would try to locate the home owner's phone number and call him or her directly. Look them up on Whitepages.com or through any skip tracing service of your choosing. Look them up on Facebook or LinkedIn and send them messages there. You have a competitive advantage over your competition by knowing all of this. Don't give that up and take a backseat with anyone else who may be mailing them because their address showed up on a list. 

The house is vacant, which is indicative of a "problem" that the owner needs to fix now. Mail a letter, sure, but the urgency of initiating multiple points of contact before your competition beats you to it is critical here.

I live in and invest primarily in Pittsburgh, PA and while a few neighborhoods have appreciated quite a bit in the last few years, housing continues to be be very affordable. Plenty of fix and flip opportunities in both residential and commercial still exist. Also, Pittsburgh remains one of the best cash flowing cities in the country and has historically been relatively immune to dramatic price swings that certainly most coastal cities have experienced. If you'd like to learn more as part of your due diligence, just let me know if I can help. I'd be more than happy to discuss with you.

Rentometer.com is the best resource that I have found to date to locate market rents. With that said, don't blindly use the average and mean rents that it provides without looking at the data that it was calculated from. Take a look at the maps and look at the individual addresses that were used as a basis, as a rent comp in another section of town that may not be applicable could dramatically raise or lower the rents given. 

I see variations of this question quite often and think it's important to clarify two different investment vehicles here, as they are often times referred to interchangeably, but are actually quite different - partnerships and joint ventures (JV). While both have defined roles and responsibilities for all parties involved, a partnership is used for an ongoing relationship where you are in collaboration for multiples deals or a series of like transactions on an ongoing basis. JVs are formed specifically for the execution of one deal or transaction. For example, a private lender who wants to invest in a deal JVs with someone who has the deal and the track record and expertise to put the deal together. Both agree to what each of them is going to bring to the table in terms of resources (financial, labor, deal making, etc) and how each partner is going to be compensated - either as a % return of their investment or a % of the deal later down the line.

As has been mentioned, I would evaluate each property individually and as a portfolio. One building may be operating better than the other and in some cases, the portfolio may perform better in aggregate compared to owning them each individually due to synergies of owning both.

@Elizabeth Roncevic @Ramon Paredes I agree with Ramon on PA. Pittsburgh, especially, has excellent cashflow, is moderately priced, and has attracted buyers from NY, NJ, CA, FL, Canada, as a result.