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4 plex investment

Dan Golby

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I'm currently finalizing my divorce and looking at getting back into real estate in the next few months.

I came across what I think is a pretty good deal, just wondering if multi-family experts can weigh in their opinion. I will share as much info as I have, I realize it might not be enough.

4-plex
built in 1978
all units could use some minor updating, but overall pretty good shape.
each unit has laundry hook up but no washer and dryer included (I find this dumb but would like input on this)
Price: $400,000
Current rents: $1000/unit
1 unit empty.

I don't see any reason why a person couldn't do a quick "lipstick and rouge" on the empty unit, add laundry facilities and get $1200.

Would really like to hear people's opinion on this deal.

Each unit only has a month to month lease in place. Will this effect my ability to finance it?


Thanks very much!
 

Martin1968

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The missing info is if any utilities are included in rents. Gas, Electric and water/sewer separately metered would make this a pretty darn decent cash flowing investment with 20% down.

Including a washer and dryer depends on the market you are in and comparing what similar units offer. As far as demanding 1200, again it depends on the market you are in and supply and demand.
We specialize in 4 plexes and we offer both, plexes without w+d or all in (as long as you can offer in-suite laundry, not shared)

As far as the lipstick and rouge, do a good job on your Reno, don't cheap out by putting new counter top on cupboards from the 70's or replace a tub without doing the tub wall or other way around.
And when doing the kitchen, add a dishwasher, I have noticed that it ranks right up there for tenants as a must have.
We even replace receptacles and light switches, add GFCI's where needed, replace lighting and fans.
(It comes in handy if u are somewhat handy and save on labour)

Then there is the curb appeal of your building, make sure it looks maintained.

It has been my experience that quality rentals will make you stand out, wow the crowd, and they will fork over $200 a month extra. As an added bonus, often you can select good quality tenants because of all the above.

Month to month or 1 yr lease for financing doesn't make a difference but make sure you get copies of written leases.
 

Thomas Beyer

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Sounds about right: $100,000 for $1000 in rent. Missing is province, size of town, deferred maintenance status, suite size and balconies ?
 

Dan Golby

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Thanks for the feedback. This is in Cold Lake Alberta.
I agree about doing quality renovations, I'm an electrician so the lights and outlets would be the first things that get done.
The utilities are paid by the tenant so it sounds like it isn't that bad of a deal.
I will have to see it in person before I can tell how much work each suite needs.....so far it seems like a deal
 

Matt Crowley

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Well, I'm running it at a mill rate of 5.4555 per Cold Lake website + $400 insurance / mo + 12% management fee and no maintenance, advertising or other costs. So $3062 in cost per month. Total of $2,000 in cyclical expenses per year (very low in my opinion)

Assuming 2% appreciation per year and 80% LTV, you are bound to make a compounded -1.91% return in 4 years. If property value appreciates 5% per year you will make 10.1% compounded return. So depending on how realistic you think the appreciation assumptions...
 

kfort

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I'm an electrician so the lights and outlets would be the first things that get done

Use combined elec/ USB outlets. Minimum 1x/ bedroom, 1x kitchen (whichever doesn't need to be a gfci), 1x living area. And point them out at walk through.

It's the cheapest way to impress 20 something's I've found so far
 

Dan Golby

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Well, I'm running it at a mill rate of 5.4555 per Cold Lake website + $400 insurance / mo + 12% management fee and no maintenance, advertising or other costs. So $3062 in cost per month. Total of $2,000 in cyclical expenses per year (very low in my opinion)

Assuming 2% appreciation per year and 80% LTV, you are bound to make a compounded -1.91% return in 4 years. If property value appreciates 5% per year you will make 10.1% compounded return. So depending on how realistic you think the appreciation assumptions...

So do you think it is a good investment or not?
Not sure I follow you completely, dumb it down please
 

Thomas Beyer

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What's your view on upside in oil sands land ? Is there enough demand among the many vacancies AND upside in value in NDP controlled emission capped social license seeking oil sands land at $45/barrel ?
 

brad ell

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Oilsands overall may never get back to where it was 5 years ago but cold lake should be in good shape. Cenovus will keep expanding, they also have conventional oil and gas, and the base helps as well. Better situated then a lot of oilfield towns in my opinion.
 

Thomas Beyer

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Oilsands overall may never get back to where it was 5 years ago but cold lake should be in good shape. Cenovus will keep expanding, they also have conventional oil and gas, and the base helps as well. Better situated then a lot of oilfield towns in my opinion.

I agree. But better than Calgary or Edmonton per $ invested ?

We own some development land on English Bay road and wondering if an eventual sale or further development is the right strategy for 1/2 acre estate lots .. many with views.

Thoughts ??
 

kfort

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Cenovus may not be in quite as good of shape as they pretend. Their one upon a time world leading tech in SE sask just went on the market and their shares have drastically declined (~60%) the last 9 months. ... CEO just "retired" also.
 

Dan Golby

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I work for Cenovus so I really need this rental property to work well for when the company goes bankrupt (kidding!)
I believe that Cold Lake likely won't see another crazy boom for several years but I also think the worst has past. People up here are starting to get some confidence and although it is still slow relative to a few years ago, it is a lot better than it was at the "bottom". Good workers are able to find jobs now at least. For this particular investment I need to buy right, and keep it in great shape and manage impeccably. I believe that it will be tough, but if it works in this market it will pay huge dividends when the market gets better.

Cenovus went from being flush with cash to overpaying to buy out the FCCL partnership with ConocoPhillips, it has hurt the company a lot, but Foster Creek is one of their 2 key holdings and should still make them money.
Thomas with regards to your land deal, keep holding! Cenovus had a recent plan in place to make Foster Creek a full camp facility by Jan 2018, this obviously hurts the chances of a bunch of new employees moving to town when they would have to stay in camp anyway, HOWEVER, with the CEO gone and one other executive gone we are already hearing rumours of them scrapping that push as it is much cheaper to bus people in and out than it is to put them in camp for the night. If they scrap the camp policy I will let you know, even though you removed me on Facebook
 

Martin1968

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In order for any of us to comment on wether it's a good investment, we need to know more details.

But.......for the sake of calculations, let's assume all utilities are individually metered.
Putting your prop tax on 4000 annually and your insurance is going to come in at appr $2200 annually.
Your mtg payment is appr $15000 annually. (320K mtg, 30 years at 2.5%, but ofcourse you would offer lower then 400K to save a few extra bucks)

To keep the calculations simple your total cost is $21200, your revenue is $48000 (potentially $57600?)
It cash flows$26800. (Or up to .....$36400 based on your rents at $1200, per unit per month)
I did not include the mtg paydown on your principal but calculate appr 8000 annually. I will leave any appreciation out but that could also be calculated in as a factor that will increase your return on investment, but in return any heavy capital investment needed would or could equal that out again.

About hiring a management company; You live right in Cold Lake, why would you. You are a tradesman? Do the work yourself. Money in your pocket my friend. Are you healthy and fit? Maintain the lawns yourself in the summer time. Advertising cost? A for rent sign and a black marker for $4.00 from the dollar store and free advertising on kijiji.
So what would there be in other cost? Maybe allow a little for vacancy and allow for some maintenance.

I appreciate the posts on these forums that analyze the numbers to a tee, and granted, the cash you put in ($80k) could indeed be put in stocks or mutual funds or whatever other products the financial advisors like to sell you.
But all these type of investments you put in the hands of people that know the financial markets, but don't have a hand in how it will perform. Ofcourse they will analyze it to death for you. And besides, to me it's almost like watching paint dry. Or watching geraniums grow. There is not much excitement in it.

The thing with investing in real estate is that most of us are or have been self employed, running their own businesses and have an entrepreneurial spirit. We know about revenue and cost, and to find the balance and to control it, in order to profit from investments. What's more gratifying then to control that destiny by working hard at it.

So to answer your question if this is a good investment, you have to number crunch based on the details you have, and make sure you have them all. And then do what you feel comfortable with.
But if my calculations are right, or at least being close to the actual numbers, jump on it.

I hope this helps.

P.s. To bad Cold Lake is to far away for me.
 

Dan Golby

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Wow, thanks for the detailed reply.
I should clarify a bit and say I was trying to compare this investment to something in Edmonton or other areas. My gut says it is a pretty damn good investment and I can't keep a thought in my head I'm so excited about it
I am a tradesman so I will do lots myself but I also work in camp half the time so property management might be necessary. I will definitely do the yard maintenance myself to save cash.
Regardless I can't wait to get the heck out of camp so I can go take a look
 

Cory Sperle

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What's the vacancy rate in Cold lake? If it's like other oil towns like Lloydminster, or Estevan, and even the smaller centers surrounding Edmonton vacancy rates are in the teens, and sometimes even higher. What would this property have been worth in 2007, or 2014?
 

Dan Golby

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What's the vacancy rate in Cold lake? If it's like other oil towns like Lloydminster, or Estevan, and even the smaller centers surrounding Edmonton vacancy rates are in the teens, and sometimes even higher. What would this property have been worth in 2007, or 2014?

The last number I heard for vacancy was 24%, highest in the province, however since then it has turned around and of the landlords I know, nobody has a vacancy. The number of for rent ads is less than half of what it was a year ago, and I truly believe that pro-active landlords with great products are able to ride it out.

I would say the property would have been worth about $550k in 2014, and the rents should have been at least $1600 but I need to see it in person before I make that call for sure.
 

Courtney Hammond

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Also important to know/budget for is repairs. Once you've seen the property that will help- but big capital repairs need to be budgeted for. Make sure a leaky roof or HVAC systems aren't going to sink you because you didn't plan in advance for "the worst".

Also- budget for vacancy. I personally like to see my properties have at least 3months rent in the bank (I have it upfront and then replace it with a portion of rent)

If you run it like a business - and the "cash flow" isn't just going into your pocket- but protecting your business-- there is a lot of good things going for this property (according to what you e posted/know so far)
 

Dan Golby

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Thanks Courtney!
I got a little excited and posted a bit early. Obviously there is a lot of due diligence that needs to happen before I pull the trigger, but so far I like what I see.
Can't wait to view it.
 

Martin1968

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I would say the property would have been worth about $550k in 2014, and the rents should have been at least $1600 but I need to see it in person before I make that call for sure.

Ok, you really have to stop it now, cuz at those values Cold Lake is all of a sudden becoming a lot closer for me
 
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