All Forum Posts by: Shak Noor

Following this as I had my consult today and they wanted $19k.

I suspect they price based upon household income if I had to guess.

What other alternatives are out there and how much do they charge?

Hi All,

I'm new to commercial, have been wanting to get into either retail or multifamily value add.  I want to give you some info on a deal that was sent to me to get your thoughts and input.

Purchase Price: $1.25M
Total building SQFT: 12k, Built in 2001
Located in Houston, TX
90% Leased (80% is a national dollar store chain, 10% is a national pizza chain)
10% is vacant
Current Cap rate is 7.75% with taking into account the vacant area.
Dollar store has been there since building was built and lease expires 2022, with 3 and 5 year options
Pizza chain has been there since 2015 and lease expires in 2020, with 2 and 5 year options
Rents for both tenants have been the same since their lease inception with no increases.  The Dollar Store performs above average from a revenue standpoint (they have to report their sales as part of the lease agreement).
Brochure says the NOI is $98k.

I like that they are great tenants, mostly rented, only small space to get filled out.

I don't like the area it is in.  It's not super high income, less than $70k and the area would be considered outskirts of Houston, so growth in housing and development is going to be very slow.

I'm new to retail, but I want to buy something that I can increase the value on in the next 2-5 years.  The only way I see that I'm able to increase the property value here is to get the 10% vacancy occupied and increase rents for the dollar store.  They are paying $8.xx $/sqft per year, and I believe that rate was locked in from the initial lease signing.  So assuming I could raise their rents at renewal (2022) then I should be able to appreciate the property some more, but that's still quite some time away.  If I try to raise too high, they may leave, which would be a huge strain on the property.  I'd have to invest money to split up the space and rent out to individual tenants.  That would be good for the $/sqft/yr because the pizza place is paying around $17/sqft/yr for less than 2000 sqft.  So that would be another way to potentially increase rents.

What are your thoughts on this deal?  What am I missing or overlooking?  I'm in my early 30's, I'm not looking for capital preservation, but want to grow the property value over time.  

Thanks! 

@Henry Perez - I'm new to the landlord game.  My understanding is depreciation needs to get added back when selling a property.  So is it really that big of an advantage at the end of the day if 5-10 years it comes back to you as an expense?

I'm sure we've all seen them in our towns, large retail strip centers, the facades look old and dated, the center is 50% occupied at best.  We've seen them for sale, but when does it make sense to actually buy one of these and what does it take to make it a successful investment?  Is it worth the risk, or are the cards stacked against you?

I would think you could put a new facade on the building and update interiors as needed, but I doubt any national tenants will all of a sudden move in, I could be wrong but just my gut.  

Has anyone attempted this sort of value investing, did it work out?  Or should you just stay away or maybe look at converting to a different type of use for the land/building?

Thanks,

Shak

Originally posted by @Jennifer Beadles:

Hey @Shak Noor! It sounds like you've had a lot of success with several different strategies, based on all that you've done why not work with a few strategies?

Having several strategies would allow you to do more deals. 

For example, I use the BRRR strategy, the value add multi-family long term hold strategy, the build to rent strategy and a little known strategy called supported living (renting properties to residents with disabilities which the state pays for and provides care and rents are guaranteed and paid for).

Each strategy has it's different quirks:

• Build to rent takes forever and is the hardest to find but offers the most equity and allows me to recoup all of my capital upon refinance to permanent financing and get a brand new building at the end of the day.
• BRRR offers the highest returns but takes a lot of work.
• Value add multi family is sold, easy to find in most markets and offers high cash flow and equity
• Supported living is solid with rents & utilities paid by the government and offers a zero vacancy rate but its harder to raise rents and the caregivers can be 

When a new opportunity comes up I see if any of my strategies will work and if not I pass. 

 Hi Jennifer, thanks for adding your experiences, great perspective.  Couple of questions for you:

When doing build to rent, do you ever sell them after renting them out for a year or so, or are you holding them long term?

Also, what is the difference between BRRR and value add multi family?

And how do you decide which to pursue or which one do you prefer?  

When you say you see if any of your strategies will work when a new opportunity comes up, do you not search out specific opportunities depending on which strategy you are looking to implement?

Thanks!

Originally posted by @Dave Carpenter:

Shak, Good for you having options! Seems to me the bigger question is two parts. First, what type of investing is most interesting to you, and second what do you need to accomplish. For me, I was looking for cash flow to replace income from a W-2 job. That led me towards car washes which have a pretty strong cash flow, but require me to invest time in the business. For you the cash flow may not be as important, so you could shift towards investments that are more passive day-to-day. There may also be an area that is just really interesting to you. 

Go get 'em!

 Thanks for chiming in @Dave Carpenter.  I feel like I went from passive day-to-day to more cash flow focused.  I'm not too excited about the notes business and I think that's what drew me into looking at businesses like car wash and self-storage.  Then I felt like development was the best of both worlds (more active with potential for acceleration in capital).  

I feel like maybe I'm trying to figure out if I should focus on development (which I really don't have much experience in) or 20+ multifamily with value add and exit in 5-10 years?

Originally posted by @Jeff Stephens:

Shak--it sounds like you've had a lot of great, diverse investment experiences. It's neat to see that you are almost overwhelmed by opportunity!  That's a good problem to have, and it's what happens when you maintain an abundance mentality (which you clearly have!).  

The first thing I thought of when I read your post is a good real estate book called "Equity Happens" by Robert Helms and Russell Gray ('the real estate guys,' who have an excellent podcast too).  There's a big focus in that book on finding "your personal investing philosophy" and as I recall there are some key questions they recommend you ask yourself. This could be a good book to read and go through these exercises; it could really help you shed some light on which angle of real estate is best suited for you and your goals.

 I appreciate the book and podcast references, those do sound like they'll be useful for me.  I'll check them out!

Moderator, can you delete this duplicate post?  I was posting from the app and it crashed when trying to post, so I didn't think it posted, but I guess it ended up posting before crashing.

Hi Everyone - the beauty of real estate is that there are so many different ways to be involved. But lately I feel like I'm getting lost in developing a strategy.

I work full-time, but have always looked for areas to invest in. Several years ago I purchased a foreclosed home, rehabbed, then sold via seller finance. After about 4 years I ended up selling that note.

Last year I started investing in non performing 2nd mortgages. It's been slow, but some worked out really well, some were a bust, and others were nominal.  I've hesitated to put more money into that business as it can be pretty slow especially with legal processes.

We moved out of our house this year and put that up for rent.  My first time actually landlording.  I've never been to crazy about rentals but I'm willing to do what makes most sense.

This year I was working with a partner to get into a business (notes business wasn't high enough velocity), we were looking at an express car wash or self storage, both projects would be multimillion dollar liability and we worked on this for several months until I came across a developer to works with investors.

After learning about what he does, it definitely caught my interest to get into development since you got the money out that you put in plus your gain.  Building a strip center seems most appealing, but also has its challenges (would lease out then sell).  I've also spoke to folks about building townhomes and selling or demo/rebuilding luxury spec homes in highly sought after areas in town.

Also been interested in multi family, Grant Cardine style, buy well add value, hold/sell, etc.

At this point have a decent amount of coin and potential partner but have confused myself on a strategy and what to pursue.

One day I like the idea of cash flowing, sometimes I like exit strategies that development projects have. I'm really having trouble focusing on a strategy at this point.

How do you guys hone in on your strategy and weigh the pro's and con's of different ways to invest out there?  I'm curious about your thoughts on the different ideas/strategies I've laid out above.  All in all I want to build wealth and financial freedom (don't we all?).

Hi Everyone - the beauty of real estate is that there are so many different ways to be involved. But lately I feel like I'm getting lost in developing a strategy. I work full-time, but have always looked for areas to invest in. Several years ago I purchased a foreclosed home, rehabbed, then sold via seller finance. I ended up selling that note last year. Last year I started investing in non performing 2nd mortgages. It's been slow, but some worked out really well, some were a bust, and others were nominal. We moved out of our house this year and put that up for rent. This year I was working with a partner to get into a business (car wash or self storage). Focused on this for several months but eventually got distracted with development. Met a developer and most recently wanted to either build a strip center, lease out then sell. Or build townhomes or demo/rebuild luxury spec homes in highly sought after areas in town. Also been interested in multi family, Grant Cardine style, buy well add value, hold/sell. At this point have a decent amount of coin and potential partner but have confused myself on a strategy and what to pursue. One day I like the idea of cash flowing, sometimes I like exit strategies that development projects have. I'm really having trouble focusing on a strategy at this point. How do you guys hone in on your strategy and weigh the pro's and con's of different ways to invest out there? Thanks, Shak