All Forum Posts by: Steven Lalonde

Hi Frank,

I appreciate your reply.

Im mostly confused why or how the seller justifies this property a 50/50 residential/commercial to calculate expenses. 12 pads and 1 house. Even if I lived in the house, there is still 12 pad units paying 12 expenses, if that make sense. Is it because they value the house at $475,000?

I found out today, the house has two septics, the park has 3.

Water and garbage annual payment is $5800. Seller is saying that $2900 is for park and $2900 is for the house. This does not seem right to me. Seller is basing all expenses like this.

Seller is saying NOI is ($54,000 - $6500 (half of $11,000 full expenses) = $47,500) based the park being split 50/50, their value for park alone is $475,000. That makes their cap rate at 10%.

How much really does the house factor into all of this, it cant be 50%. Should I then base the cap rate on the full property value of $950,000? That would result in a cap of 5%.

Im not sure how to proceed and how to value this property correctly. Any more help is greatly appreciated.

Steve

Hi BP community,

I am analyzing and collecting info on a small MHP in my area that I am interested in. Im asking for your help and advice on this deal.

The park is on 7 acres, currently has 12 pads, all tenant owned, $375/month pad rent, tenants do own yard work and maintenance, tenant pays for electric, owner pays for water/sewer/garbage/roads. On the property is also a large house. My family would move into this house, and potential to have a 3bed basement suite, $1600/month including utilities. As of now, the current owner splits the income 50/50, residential/commercial, so the expenses for the MHP are essentially 50% (if that is right?).

Water is a community system, no well. Sewer is x4 septics, one of those is for the house. The owner has been pumping the tanks every 4 years, one a year. There is potential to install water meters for each pad, and bill back water to the tenants. Park is on a paved road, road needs maintenance or full repair. I am looking into expansion potential. I am assuming I could get 6-8 more pads on the property, just due to the layout of the current park. I am budgeting $15,000 for each lot creation. RV or tiny homes are of interest to me as well. Potential to have a fenced RV storage or a mini storage. Estimation $600/month for income, maybe more.

Asking price is $950,000. The owners 50/50 income split, would mean they think the MHP is $475,000 and the house is $475,000. In my opinion, overhead map, the split could easily be 20/80, residential/commercial, especially if the expansion goes through.

Comparables of just single family houses in the area are selling for the $400,000 range. The house on the property is pretty decent. A large deck would need to have vinyl decking replace. There is a large in ground pool that is fully fenced and in good shape. I would be ok to pay in the $400,000 range for the house and the land it is on. The park, according my valuation is not worth the owners asking price of $475,000.

Owner provided their income/expenses:

$950,000 asking price

$54,000/year pad rents

11,000/year expenses for whole property (prop tax, insurance, water and garbage. Owner did not include any septic maintenance or other park maintenance, so I dont think this is fully accurate.

Based on owners 50/50 and income/expenses, they say their NOI is $49,000/year with a 10% cap. This only includes the 12 pad rents and not income on the house or RV storage.

I was hoping for some help evaluating this property. If you need more info, I would be glad to provide that.

Thanks,

Steve

Thanks for your comments.

@Edward - Each unit has at least a kitchenette. Not ideal, but could be student rental in my area as there is a shortage of housing for students at the local college. There is 10 bachelor or studio units with kitchenettes. And 8 one bedroom units with either kitchenette or full kitchens. Rental income I can expect in my area is $15,000/month for this 18 unit if fully occupied.

@Bjorn - The expenses that I am working with at this point is the sellers "made up numbers". For example, their insurance is $10,000/year, roughly $830/month. I will be looking into getting a better rate then all their expense numbers. But this is my starting point. The $145,000 is what the seller has listed as their annual expenses. $218,000 in revenue is what they reported, as operating as motel.

Any suggestions to make this a better deal? How would I begin justifying where I should start an initial offer price?

Thanks,
Steve

Hi BP,

There is a property in my area that I am looking into. Currently it is operating as a 18 unit motel (11 units + garage/storage area in one building, 7 units + laundry facilities in second building). It is zoned C-2B, tourist accommodation zone, which does allow long term rentals. I am interested in converting the motel units into long term rentals on a month to month lease, with a few units air bnb short term in peak seasons. The sellers pro forma states that 2018 income was $218,000/year with expenses at $145,000. Im not sure I believe the income, but that is heresay. The units are abit run down. They are liveable, but new flooring, trim and paint would help spruce things up.

For my analysis, I used some of the sellers pro forma info (as I have not fully accurately looked into items such as insurance, prop taxes, utilities, ect.) and used what I believe my numbers and annual income from rent/storage would be. The property is master metered, so the landlord is paying, what they say, is $25,000/year in utilities. Separating utilities would be a large upfront cost, however, utilities under master meter is approx $125/month/unit which would be in the range where normal utilities would run in my area.

Purchase: $625,000

Closing costs: $15,000

Down payment, 25%: $156,250

25 year, 5% interest

Monthly P I: $2740

Monthly income: $15,200

Monthly expenses: $11,715 (most numbers are sellers pro forma until I look more in detail)

Not accurate rehab quote at this point, but what I mentioned above, if each unit needs a facelift with flooring and paint, approx $5000/unit, close to $100,000 rehab budget would need to be expected. Some of the units there is quite a lot of deferred maintenance that the sellers have not addressed in the last 8 years of ownership.

Acquiring the property with numbers above, injecting $100,000 into rehab, what could I expect the ARV or value of this property be once renovating and fully stabilized with good tenants?

Would this be an investment worth pursuing?

Thanks for your time,

Steve

Hey,

Thanks for the replies so far.

I have looked into rezoning and have had other properties under contract with rezone subject, but ultimately I did not close on them due to other reasons. Other properties that I have had an accepted offer on, did not want to "wait" the rezone period, so I backed out and didn't close on those either. I know and understand the process in my area to rezone, and for my level of risk, I would need to have the rezone subject in the agreement. I could not buy this building in the hopes of the rezone to go through, only to find out that I could not get rezoning...then what do I do with the building.

In my area, the demand for rentals is high. So I "think" the rezone would go through, and like Brandon Halley mentioned, adding some value and curb appeal is what I do with all my properties. I want mine to stand out from the competition and have people rent my units first.

On that note, would people suggest getting an accepted offer on this or any building with the subject to rezone, then approach banks and lenders for financing?

I also have a very good idea what the renovations would cost as I am half way through a substantial basement suite renovation. This potential building would have much of the same renovations, times 4!

Any other tips, advice or guidance people can provide would be stellar!

Steve

Hey,

I am looking for some help and guidance on how to go about making this deal happen.

There is a building for sale listed on the MLS that is currently used as a church. It is zoned public institutional and would need to be rezoned to residential. My idea is to convert the space into a 4 plex residential building. I have not viewed the building in person yet, but I am thinking 4 - 2bed/1 bath units.

I guess my question is, how do I go about making this deal happen? Vague, I know, but some guidance would be great from all you experienced pros out there. How would you approach banks/lenders for financing?

If you need more details, I am more then willing to provide.

Thanks,

Steve

Hi,

I am wondering if there is any benefit to doing this, for tax implication.

From my soon to be refi, I will have $40,000. Should I transfer this cash into a business bank account? And if so, does this help me for tax reasons? I am on looking to purchase a property with this cash and operate all parts of the property through the business bank account. I am currently personal and looking into sole proprietor, will this benefit me?

Thanks,

Steve

Hi David,

Thanks for your reply.

Let me check out Cleveland and see what is available. If you want, PM me some of the properties you are interested in and I will see if it fits my criteria. Like I said, investing elsewhere does scare me, but if the systems are in place, then it may be a great opportunity. How far away from Cleveland are you? I would say my core strength is doing the rehab work myself. I very much enjoy fixing up properties, its my hobby and passion. However, I do realize that doing the work myself takes away time to do other things and to find other deals so I am slowly grasping the idea of getting other people to do the work for me. I want financial freedom and my day job will not get me there.

Talk soon!

Hey everyone!

I am actively looking for my second rental property, however, my area has been crazy lately. Properties come on the market and are snapped up pretty quick. In my opinion, prices seem too high and it has been challenging to find a good cash flowing property, thus my offers are lower then most. I am looking in the West Kootenay region of British Columbia but have expanded my search further out. This year, I have made many offers, a few offers got accepted, but the inspections did not go well on those properties so I backed out. I have looked mostly at SFH and duplex properties and a few small apartment buildings. Trying to BRRRR, but those are far and few between in my market. Looking mostly at buy and hold. Been looking mostly on MLS, but trying to find FSBO as well. Attempted to do rent to own, but no luck with that yet either.

I am days away from completing a refinance on my first rental property so am ready to jump into another property very soon. I am thinking about getting into a market that is away from where I live, however, it scares me a bit.

Is there anyone that would be interested in partnering on a deal, either in my market or elsewhere? I am open to any type of partnership as long as it works for the both of us.

Looking forward to seeing where this goes. Talk soon,

Steve

Hey,

Ill try to explain the numbers better. 

Me and the seller agreed on a purchase price of $200,000. To convert the property  from its current state and rehab into a Triplex will cost roughly $100,000. My lender requires 25% down on the "Finished Value" of the property, as it is zoned commercial and not residential. I have not completed the appraisal yet, but my best guess is that the Finished Value of the property or appraisal will come in at $350,000.

I am doing a purchase + improvement loan. So, $200,000 purchase price + $100,000 improvement = $300,000. A residential purchase + improvement loan with these numbers would be 20% on the $300,000 which would be $60,0000 down payment + closing costs and appraisals. Since it is a commercial loan, my down payment for this property would be 25% on the $350,000, which would be $87,500 + closing costs and appraisals.

I need to come up with the down payment and fees, which will be approx. $100,000.

I guess I am confused at my starting mortgage loan amount before REFI. Would my starting loan be the purchase price of $200,000 - $87,500 down payment for starting loan of $112,500? Or would my starting loan be the purchase + improvement amount of $300,000 - the $87,500 down payment for starting loan of $212,500?

After improvement rehab is complete and triplex is rented out and stablized, I am planning on REFI the Finished Value of $350,000 at 80% LTV which is $280,000. What can I pull out of the property to pay off as much of my down payment, closing costs and appraisal fees? Is it $280,000 - $212,500 = $67,500, or $280,000 - $112,500 = $167,500. If the latter, then I could pay off the approx $100,000 and pocket $67,500 to repeat with another property.

What am I missing here?

Thanks,

Steve