All Forum Posts by: Ryan Busk

 This makes complete sense to me now, and seems like sage advice indeed!  Thank you again for your thoughtful comments!

 Thank you for this perspective!  We were hoping this could be something we could buy and hold for quite awhile, so this could seriously complicate the exit strategy.  With proper maintenance though, it seems like a previous poster thought the building could remain economically viable.  The pipes and wires of the place do worry me a bit, but since it is so hard to assess, is it something that just should be factored into the purchase price and reinforces the fact that, among many reasons, it would be dangerous to overpay for the property?

 Pre McDonalds!  I love it!   Thanks for the reassurance on this issue, have you found that proper maintenance in an older building is more expensive than in a newer property.  I checked the national historic registry, don't see it on there, although a large swath of town is on the list.  What other historic registries are there?

 Thank you so much for the thoughts!  $600-625k was what I thought seemed reasonable, it sounds like even that might have been a bit high.  I just don't have any experience, so I don't have a lot of faith in my own assumptions at this point.  A purchase price of $600k would cash flow very well.   I don't understand exactly what you mean about hiring the property manager to manage the dental practice as well as the apartments.  What sorts of issues could spill over onto the practice?  I had thought that any management would be responsible for the apartment portion only, but it sounds like I may be missing something there.

The location seems ideal for this smaller town.  Corner lot on the 2nd busiest road in town.  Demand also seems very strong for apartments.  One of my concerns is the age of the building, it was built in 1941.  It has been very well maintained, however, 75 is 75, its not a spring chicken.  Can anyone help me understand how the age of a property affects its value.  Also, if we buy and hold for 25 years, is a 100 year old property worthless?

 Thanks for your helpful comments!  Especially the quote above!  My problem is always the negotiation side, I think it is a great opportunity, but my gut said the asking price is too high, and I know that my negotiation skills are not fantastic, especially when I don't have a lot of confidence in my knowledge.  I think an 8 cap is more realistic for this area, and I think I might just have to find someone local to help me make the deal work.

I am a dentist. A dentist with an unfulfilled interest in real estate who always entertained the idea of having several small multi family rentals someday. Someday being in the future when my kids are a bit older, as part of my retirement portfolio, small being SFHs or duplexes. Suddenly, I find myself the owner of one NNN property and wanting to make an offer on a second property that is a bit more complex.

The first commercial property my wife and I bought is the dental condo that our practice is in.  The practice and real estate were for sale as a unit 2 years ago, so we bought both, and it has worked out very well.  From this experience, I have some knowledge of commercial real estate investing.  I read some books and blogs, but it's fairly low risk, we rent from ourselves.  Rent $$ comes in, mortgage payments go out, there a little left over every month, and the practice pays for everything else.

We recently bought a second, satellite practice in a town nearby, and have been given the opportunity to purchase the building.  We love renting from ourselves at the first practice, and would like to do the same here, but this building is multi use, with our dental practice on the first floor, and 7 apartment units (2 in the basement, 1 on the first floor, and 4 upstairs).

I have been taking a crash course in multi family real estate here at BP and Google.  I have downloaded several different pro forma spreadsheets to evaluate the deal.  I have verified some of the data, waiting on tax returns and P&L data to finish the due diligence.  Here are the 2014 numbers I put together when I looked at the property late last year:

  2014
Rents (Total):       67497
Apartments:        37497
Dental office:      30000                
Expenses:           -24878    
Taxes:                 -5372
Insurance:          -3360
Utilities:               -9196
Maintenance:     -2000
Repairs:              -2700
Management:     -2249

Net Op Income:    42618

Asking price is $700k. The dental office rent has gone up and will be 3000/month in 2016, making the NOI about $48,500. The apartments had about 29% vacancy, but that is largely due to a studio in the basement that has not been leased since at least 2013 (no in unit bathroom, kitchenette only). Not counting that unit, vacancy was about 14%. I think this is partly due to rents that are a bit above market rates, and partly because the current owner has been rehabbing units when they turn over.

I have talked to the bank about financing.  Since the square footage split between the dental practice and the apartments is about 50/50, there are quite a few ways to finance the deal using equity in our dental practice to finance the down payment if we wanted.  One question I have is if we took that zero down financing option, the cash flow after paying the debt service is slightly negative.  Should I only consider the first loan, not the equity down payment loan when making that analysis?

We would like to buy and hold the property for a long period, but it seems like returns diminish over time as you hold a property.  I am also struggling to wrap my head around whether being our own landlord is a double bonus in this situation, and should make us willing to accept lower returns , or even negative cash flow at first, because otherwise, our $36k annually in rent is just gone every year.  We have a number of renovations planned for the dental office space, which would benefit us much more if we owned the building as well.

I mostly need to know what questions to be asking or critical information I may be missing, I don't want to buy something that ends up costing us money in the long run, just for the sake of being our own landlords.  On the surface, it seems like an excellent way for our own rent money to build equity in the property over time, and then provide us a nice passive income for many years as well.

Any help is much appreciated.  Please tell me what information I should be seeking out, what should I educate myself on?  I am afraid that I don't know what I don't know, but if this would be a safe financial move, I don't want to miss out on the opportunity.

Thanks!

 The military dental scholarships are a GREAT deal!  If you don't mind the sacrifices you have to make to get them.  My wife and I considered taking that route after school, but we wanted to start a family, and didn't want to do that in a different state or overseas.  We opted to both work in public health and get some of our loans paid back that way.  It worked well, we got lots of experience, built our hand skills, and retired about $200k of our student loan debt over 4-5 years.

Hi Brian,

As a dentist myself, I thought I could chime in.  I had a bit of a chuckle when I read this, "Dentistry seems like a relatively quick route to a six figure salary"  It is quick, in that you can get out of school and instantly make over $100k.  The problem is that dental school costs north of $300k now.  Given that you already have $20k in student loans, I am making the assumption that you don't have a large trust fund to pay for dental school with.  I didn't either, and neither did my wife.  We left school owing over $600k in student loans before we had ever worked a day.  Now, 7 years later, we still owe about 40% of that, albeit mostly at very low interest rates.

All that said, I just signed up for BP because I am looking at a possible real estate deal and need some advice, but it has taken me 7 years to get here, and the only reason I am looking at real estate at this point is because we would like to own the building that our practice is in, and it has become available for purchase if we would like.

Dentistry is a difficult profession.  Those doctors working 3 days a week are spending at least another day a week managing their practice.  They also spend lots more time keeping up with the ever changing technology and services by taking many hours of continuing education.  

Please, don't let me talk you out of the dental field, it is an incredible profession!  But there are tons of great jobs with excellent salaries that you can get with a 4 year degree that don't come with the $2k/month debt service that dental school does.  

Best of luck, if you are serious about attending dental school and have questions, by all means, let me know!

Ryan