All Forum Posts by: Reuben Stone

I have an interesting question for everyone! I am looking at a mixed use deal right now. The rents in the apartments are a good amount below market. The building has the ability to produce 140000+ in rental income with 72000K if that coming from one tenant (Aarons furniture rental) . This tenant rents about 7500SF. My questions/concern is my state has just put big restrictions on the way companies like Aaron's and Rent-A-Center do business. They felt these companies were taking advantage of the low income population. My fear is that these new restrictions will make it so Aarons does not renew their lease in the future and then I am left with 7500SF of commercial space empty and 72K less in income. 

My questions is how would you go about factoring this possibility into your analysis? and does this change the way I calculate my purchase price? 

@Brandon Turner would love it if we could get some e-books or maybe a podcast on finding and leasing commercial spaces! I own a property management company and its really easy to generate traffic for residential properties but commercial is a whole different animal. We are going to trade shows, and communicating with our local economic development team to generate some commercial traffic. Any advice or resources I could tap into about finding commercial tenants? 

Thanks in advance! 

@Michael Franklin

 Welcome to the site! 

Hey BP, 

I had a thought late last night. I am currently looking at a couple deals. I own my own property management company but the company has not been in business for 2 years yet. This make traditional financing tricky. I have a couple owner financing opportunities which would require some money down. Since I own the property management company I was wondering if the following scenario would work: 

Apply for a "Business Loan" but rather than use it for my property management company I would use it for a down payment on a property. 

What do people think about this idea? This was just a spur of the moment thought that I had and would like to hear what people think. Is it a bad idea? 

@Dan O'Neill I was assuming a 650K PP with 9000/unit in repairs. Sorry for the confusion!! 

The owner is a real estate agent and is selling off his investments because he is going to be doing alot of international travel. He doesn't need to sell but feels he has to because he will not be around. I plan on hopefully agreeing upon a fair purchase price and if that doesnt work I will talk him into letting my company manage the property. 

Hello BP! 

I need a little advice. I have a property that I am looking at and I would really like to hear peoples advice on what a fair purchase price would be. I have done my own analysis and would like people to just confirm my finding for me and give me some strategies for negotiation. 

THE DEAL: 

9 Unit apartment building on a highly traveled street with easy access to one biggest city in my state. 15-20 parking spaces, and its also zoned for commercial use although currently all units are being used as apartments. New roof in 2014, new electrical 2012, new windows and egress doors, new appliances. Solid building that has been maintained basically.  Purchase price of $999,995

THE NUMBERS: 

INCOME

Unit 1 (3 BR) $1,300.00

Unit 2 (3 BR) $1,100.00

Unit 3 (2BD) $1,119.00

Unit 4 (1BD) $900.00

Unit 5 (2 BD) $1,050.00

Unit 6 (2 BD) $1,000.00

Unit 7 (2 BD) $1,075.00

Unit 8 (1 BD) $875.00

Unit 9 (1 BD) $775.00

EXPENSES

Insurance $3,264

Repairs and Maintenance $1,670

Lawn and snow $800

Taxes $17,733

Trash Removal $1,440

Utilities $3,660

Sewer and Water $3,507

Total Expenses- $32,074 

The numbers I came up with are assuming 20% down at 5% for 30 yrs.

NOI $72,737.60

Cash Flow $21,202.98

CAP Rate 7.27%

COC Return 10.10%

However I feel some things are unrealistic. According to the given numbers, the expenses only account for 30% of the GOI shouldnt it be more like 40-50%? Also the repairs and maintenance is way to low for a 9 unit building. I would assume it would be at least $1000/unit per year correct? By making the adjustment for the repairs and maintenance to $9000 for the year my new finds come to:

NOI $65,407.60

Cash Flow $31,909.93

CAP Rate 10.06%

COC Return 22.79%

So it appears to me that the asking price of $995,995 is way to high and a more realistic asking price would be $650,000.  Can the BP community confirm my finds and provide some feed back on things I may have missed and give some pointers on how to negotiate a fair price. I also own my own property management company so just to keep that aspect it mind. I am confident that the rents are slightly low and I can operate this property at less than a 5% vacancy rate. 

Thank you all in advance!! 

Zach, 

The company I mentioned was purchasing this $20M building and they had mailed this proposal to my mentor hoping that he would become an equity partner. 

Hello BP, 

I was wondering if anyone knew of any good book on how to establish a business revolved around finding equity partners. I have a mentor who was showing me an investment proposal he received and basically what the company was doing was they were buying this 20 million dollar property and they were looking for investors to get a 5 Million dollar down payment. Then they guarantee  the investors a %age of the cash flow based on their ownership and any extra cashflow is split 50/50. Does anyone know how this kind of company would be classified? Any good resources and books? 

Thank you! 

I have a pretty good relationship with the broker. I could see why he would be worries about doing a bunch of work and then no getting compensated for it. Some people just don't think about that stuff. How should I tell him that I do not want to sign a buyer broker agreement but I still want to continue to work with him? Simply put it "Mr. Broker, I am more than happy to work with you on deals that you provide me but i'm an investor and I need to keep my options open because I simply don't know when a great opportunity will arise?" Something like that?