All Forum Posts by: Sheldon Peart

Hello Everyone, 

I am looking for some opinions here regarding tracking financial progress with operating small multi-family properties.

We recently bought a 4-plex with a silent partner who provided half the equity, I am the managing partner since the property is located in the town my Wife and I live, while our partner lives about 6 hours away and prefers to be a silent partner. We have intentions of buying a second 4-plex off the same owner sometime in 2019 when they decide to retire. 

I am putting together a report to explain how the properties are performing and the types of challenges we have experienced so far, and how we plan to manage the properties going forward. I want to provide the information to our partner that i would expect/want if our positions were reversed. The following are the metrics i am thinking are most important in measuring progress as the years go on, please let me know if there are better metrics to use.

- Return on Shareholders Equity

- NOI

- ROI

- Cash-on-cash return (this was one of the main metrics we used to find the property, with our target being 15%)

I believe these are sufficient in measuring a real estate portfolio's progress from year to year, I would really appreciate any insight or advice people may have. 

Thanks, 

Sheldon 

Thanks James, 

I am planning on paying for an appraisal ourselves and then bringing that appraisal to the bank when we ask to refinance. The renovations to get 4th unit complete will be about 35K all in, but a general contractor quoted me at 78K, since I managed all contractors myself we saved alot of money. I am going to present the bank with the general contractors quote since that seems to be the "market" price at the moment. 

Does this sound like a rational approach, or do you think i am missing something?

Thanks for any advice, 

Sheldon

I have a very similar situation I am currently in, and was just asking around Bigger Pockets for advice. Julie Toh provided some insight so far. 

James & Matt, when you refinanced shortly after your purchase what type of mortgage did you have initially? 

We just bought a 4-plex, with 3 units completed and rented, we are currently renovating the 4th to get it complete and rented at market rates (as other 3 units are well below market). Once the 4th unit is completed and rented our revenues will have increased by just over 35% (we already have a professional tenant waiting to move in). 

Once all units are occupied I want to go back to the bank and get the property re-appraised in order to refinance and recoup renovation costs, and hopefully more. 

I entered into a 5yr fixed, 30 yr mortgage. Did either of you have similar mortgages when you refinanced? 

Just looking for advice on how to approach the bank, and the process, when we complete these upgrades 

Thanks and look forward to responses, 

Sheldon

Term is 5 years fixed rate, 30 yr amortization

Yes refinancing is what I am asking about. Looking to refinance after the renovations are completed and revenue is increased by 37%.

Thanks Julie, 

I would talk to some local real estate agents, but from my understanding the bank does not take a real estate agents opinion into consideration when they hire an appraiser to determine a value.

Do you have experience actually negotiating with the banks on getting a reappraisal? 

Thanks, 

Sheldon

Hello, 

Looking for some advice regarding a re-appraisal of a property after renovations with one of the big 5 banks in Canada. 

Here is the situation. 

We purchased a 4-plex that had 3 units completed and rented, but the 4th was only partially completed (Approx. 25% complete) and we are completing it as I type. The bank appraised this at 500K, seller was asking for the same price, which makes me believe that the appraiser was possibly influenced by the sellers price since there was no real comps to go by in the last handful of years. Once the renovations are completed and we get a tenant moved in, and lease signed the revenue will increase by approximately 37%, so I want to go back to the bank and get a new appraisal to determine a new value. 

I have read lots about a property needing to be 5 units for the banks to view them as a commercial operation, but this is always referring to the States, but I don't know if this applies to Canada, specifically BC. 

Questions:

1. does anyone have experience in doing something similar with any of the big 5 banks?

2. if so, what's a reasonable value to apply to the property if the revenues increase by 37%? I am thinking 15-20% but not sure how the bank will view this. 

I look forward to any advice or direction, 

Thanks, 

Sheldon

Hey Everyone, 

We just took possession of our first duplex today. I would like to thank everyone here for the advice that was given. 

Here are some details, please, if you have time, give advice if we missed something or overlooked.

1. 3-bedroom unit upstairs (1100 Sq.ft) has large deck, complete with two gazebos for shade and lounging. Laundry, dishwasher, and typical appliances. 

2. 1-bedroom unit downstairs (1100 Sq. ft) Newly renovated by previous owners through insurance work. (city water main broke and flooded basement) insurance work was approx. $25,000. Insurance replaced all floors, full bathroom, trim, drywall (4ft high), and paint throughout full unit. Has a natural gas fireplace, own washer/dryer, all appliances in kitchen except dishwasher.

3. Purchase Price: $260,000

4. put 20% down, plus requires approx. $10-12,000 in upgrades (need to install kitchen downstairs, plus the associated electrical/plumbing to do this) 

5. Should be able to get $1200 for the upstairs, and $1000 for downstairs. Which gives us just over a 10% Cap Rate. Should provide approx.. 12-14% cash-on-cash, with about 7% equity build, giving us close to a net 20% annual return. 

5. Each unit had a separate storage unit outside , plus one parking spot in driveway each.

What we like about the property:

1. very close proximity to Hospital (Federal and Provincial Gov't have committed to invest $125 Million into the hospital starting next year, with the intent that this hospital will be the central medical hub for the Cariboo Region - which is a region in British Columbia, Canada) This is big news, as this town has a population of about 25,000.

2. 3-bedroom units have the lowest vacancy rate in the town at approx. 1.5%.

3. Family orientated neighbour hood, with families on both sides of the property

4. Simple build - it is a 2 piece modular house with a concrete foundation, roof only 5 years old. 

That is about it for now, open to questions and criticism please. 

Thanks, 

Sheldon

Thanks guys,

I will request as many MLS documents from realtors from the area we want to purchase and develop some spreadsheets to help with analysis. I like the idea of calling property managers to try and confirm if the expenses seem reasonable or not. I will take the advice of posting some deals and analysis on here for feedback. I was just unsure on if there was actual documents that I should be requesting for expenses & rent rolls.

Thanks again, I appreciate it.

Sheldon

Hello Everyone,

I have two quick questions. We are currently looking for our first real estate property; multi-family to be exact, and have some questions regarding expenses and cap rates:

1. Operating expenses - I have requested this from multiple properties in order to try and place a value on the asset, but I am just getting a very simple spreadsheet with rents and expenses. I understand this is a great way to track investments, a spreadsheet is how I track all our other investments also. My issue is, are the numbers real? So my question to BP members is: is there any type of verifiable document for rent roll and operating expenses other then a spreadsheet? I understand sellers will conveniently show low expenses, I look at expenses with a critical eye and not naivety.

2. Cap Rates - how do I find out cap rates? I know the cap rate is an outcome of the NOI/Purchase price, but what if you are trying to determine the purchase price and only have the NOI variable, how do I find the Cap Rate? My logic is telling me that either I call brokers and property managers, or I determine what cap rate I am comfortable purchasing at and find properties that fit those parameters.

Thank you for your time and look forward to the advice, 

Sheldon