All Forum Posts by: Paul Smythe

I mean, I don't love STRs in my neighborhood. I live right across the street from one, and it kinda eliminates part of the point of living in a neighborhood in my opinion. Everyone else in my cul-de-sac has been there for decades and we are all good friends. The STR, meanwhile, isn't adding anything to the neighborhood.

Am I saying that STRs are evil because I don't like one that is next door to me? Not at all. STRs have their place, but I don't think that place is residential neighborhoods. I guess that's what zoning is for, though.

Any investors who have been in the market for more than 2 years will have their own success stories with their properties and may be assuming those same successful deals could be had in the current environment.

I think the current reality is that the opportunities are still out there, but it's significantly harder than it used to be and takes a lot more digging than it used to (marketing, networking, branching out to new markets, etc.).

These stories of properties bought anywhere from 2010-2019 don't really hold water in the current market. It worked then, but that type of deal is much harder to find now. Not impossible, but much harder. Your 20-30% returns are (likely) helped dramatically by the drastic rise in rents and property values. Anyone getting into the market now probably won't see the same thing.

Good investors can and will make money in any market, but it's not as easy as it used to be.

Doing some due diligence and curious about the risk and/or stability associated with a title loan tenant. I've seen some that have been in the same place for 20 years, but I assume that's not common. Anyone with experience that can weigh in?

I assume it's institutional. 3% initial low-risk returns with increases could make sense if you're a bigger player with money to park. They'll still get the other benefits of real estate, so better than nothing.

Definitely not my personal strategy, but I'm not a whale with $100m to invest.

Politics are no fun, please keep it out of this site.

To the question at hand, I'd consider it highly unlikely for anything to be passed that would prevent corporate ownership. The furious "people" you're referring to are probably like six people with twitter accounts. Best to ignore wherever you're getting this information, as far as I'm concerned. Seems like sensationalized "news" to me.

Be thankful the appraisal saved you from making a $200k mistake. I obviously don't know all the details about the property and your situation, but I'd seriously re-evaluate what you're trying to do. Sounds like you're taking on a lot of risk.

The building's value in the market is determined by the income it generates (with possible adjustments for potential future income on a fully occupied building, but that will take a buyer with higher risk tolerance). Your use as an owner operator matters for your situation, but it doesn't matter to the market unless you're doing a sale-leaseback.

It's all about the numbers. If the building needs to be updated, that should be factored into pricing. Lack of lease puts the risk on you to place a tenant.

The question is if you feel comfortable with the current tenant, current returns, and the risk/upside of the vacant space.

Good question on the broker. I think you're smart to be skeptical, I've had brokers push me to pursue properties that probably weren't going to be good investments. Doesn't sound like he's that far off on the valuations, but comps are not how this should be valued.

Trust your gut.

I'm certainly not a rockstar, but here's my crack at it:

Pros:
-Commercial allows you to invest at a much larger scale
-Valuation is much simpler than residential because it's all income-driven and logical. If you can push up income even a little, value will increase at 10-15x multiple.
-Stability once you have the tenant is great
-It can also be much more passive with NNN leases, so someone is handling all of the expenses and maintaining your building for you.

Con
-Because of the larger scale, it requires much more capital, which can rule out a lot of investors for most deals.
-Tenant placement and the increased risk that comes with finding a tenant. If you have a long-term lease with a credit tenant, it's extremely valuable. Problem is, if it's only a short-term lease or a higher risk tenant, your valuation is hurt.
-Potential environmental issues if you're in certain types of industrial property.

Yep, definitely check with an architect. Sounds like a really interesting investment regardless of what happens to the basement. 10 caps are rare nowadays. This one is spread out across a number of tenants, which reduces the risk.

If this was a great credit tenant with significantly reduced risk of default, I could see the 6 cap being worth it. You've got the 1.25% spread, though, so there's little room for error. You'd be operating on razor thin margins where even the most minimal vacancy will leave you at a painful deficit.

All that said, I don't know your financial position so this is only surface-level advice. 6 caps in this market are not unreasonable, you're just taking on a lot of risk with this particular deal.