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Buying first piece RE, 6plex, details of transaction, what you guys think?

Discussion in 'Real Estate Discussion' started by Myron Bas, Oct 30, 2017.

  1. Martin1968
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    Martin1968 Member Registered

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    LOL too funny.
     
  2. Michel Lafleur
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    Michel Lafleur New Member REIN Member

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    My personal thoughts - Wabasca is a brutally tough market, especially if you aren't a local (30 minutes or less).
    Wabasca is also a fairly remote location for contractors if there are jobs you cant do yourself. And even if you are super handy, its also a 2 hour drive to a decent hardware store for supplies.

    Your best bet to fill vacancy or get decent rents here would be to partner with an oil & gas business and house their workers.
    I wouldn't be comfortable owning a potentially vacant property in Wabasca - vandalism and vacancy are likely to cost you a fortune for insurance on this place. Have you already asked for an insurance quote on this property? Highly recommended before you remove conditions.

    I agree with some of the experts above - cash play or minimal financing for this, and even then I wouldn't do this unless you're local and plan to own this for a lifetime.
    Should you want/need out, it'll be extremely difficult to sell anytime in the foreseeable future.
     
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  3. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    Well said. It will work only for a young brash local entrepreneur with big hairy balls.
     
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  4. Myron Bas
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    Myron Bas New Member REIN Member

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    Thank you guys for the replies! Very very helpful.. That said, I double checked if it's on reservation land, it is not.. As for selling later, I'll take it into consideration, I'll tweak my assumption on sale price alot lower and it still works, if this area comes back it will be very worth it, I can sell it with a strong cash on cash return, irresistible price and still make good money... As for the building supplies, there is a newer Home Hardware right in town.. I just seen a news article that came out on Oct 29th that Husky oil has put in an application for a $400m oil project, 40km south east of Wabasca.. I'm taking that as a indication of trend going the right way.. I've walked the building and it not near as bad as I thought it would be! Some units are remodeled already.. I kind of screwed up because we can't paint exterior in winter but whatever.. The exterior looks bad, I wanted that as a selling point when I approach potential tenants.. The building's electrical bill was shut off for boiler, entire building has been freezing -18C.. Water was shut off beforehand but should I watch out for anything either way?
     
  5. Myron Bas
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    Myron Bas New Member REIN Member

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  6. Martin1968
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    Martin1968 Member Registered

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    If this building was a foreclosure and been empty for quite a while, banks would often as standard practice shut off all utilities in order to not have any cost. As such I would think that they have winterized all plumbing in the past and there should not be any damage. However, if this hasn't happened you would want to discuss and have this inspected. You should be able to tell if it's winterized as companies that do such work usually leave written signs all over the premises.

    For the rest, I think you have gotten all the answer and insights (all very valid) on the risk of buying in such small towns and if you still feel comfortable after all this then go for it.

    One thing I would want to point out is to select your tenants carefully, do your due diligence, check previous rental and work references, if no regular employment, think twice before taking them, etc.
    When in doubt, pass on them. Have patience.
    It only takes one bad tenant to not be able to attract the right tenants for other units or the good ones walking away from it. It's a challenge in such a small town especially looking at the demographics.

    Also, spend money on having a good real estate lawyer draft the best lease contract, know the tenancy act etc. Being a landlord brings a certain level of risk, but you want to try to minimize risk as much as possible.

    Here is to hoping Wabasca becoming the new FortMac !
     
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  7. Myron Bas
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    Myron Bas New Member REIN Member

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    Thanks Martin, I appreciate it.. It's a go then

    Myron Bas
     
  8. Myron Bas
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    Myron Bas New Member REIN Member

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    Whoa, I see what you're saying now, that's definitely no small thing! 80 units here is insane man lol.. I'm in Fox Creek now, investigating the town, I am looking at an off market deal I'm being offered.. I'm being told the region produces alot of condensate.. If the area has this decent amount of activity at this oil price, then it must be a good bet? Do you know of depletion rate in area? How long can this possibly last? I'll check oil service company rates to see of they have gotten expensive.. I've been talking mainly to workers and they don't really know much, will start finding contacts and going up chain of command until someone tells me what I need to know.. The deal is a good deal as long as this activity keeps up..

    Myron Bas
     
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  9. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    Fracking and low cost extraction a better bet than oil sands based or heavy oil. Sustainable as oil will remain in the $50-60 range for quite some time - barring any major world events / black swan events.

    Likely an ok buy sub 75/door if rents approach or exceed $1000/month
     
    Last edited: Nov 5, 2017
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  10. Myron Bas
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    Myron Bas New Member REIN Member

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    Hey guys, there is a problem with my gas and electric annual expense assumptions.. I estimated $8000 a year for the 1985 building, 5000 sf, gas and electric together.. It has a 2009 boiler.. I used the bills from this year, with building empty, both gas and electric came up to $5200 for first 3 quarters, 2017.. Then I found out that the boiler was shut off the whole time, so that throws off my assumption.. Anybody have any idea what nat gas expense would be in a year for this type of scenario? The gas company won't release previous years bills.. I didn't know boilers used so much gas lol
     
  11. Martin1968
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    Martin1968 Member Registered

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    As per previous post, on foreclosure props banks often shut off al utilities.
    As for cost per unit per year, I would think if you calculate electrical and gas at $200.00 per unit per month, if all is separately metered. If not separately metered, then lower, as you will only have distribution charges etc once. So I recall you said it's a 6 plex, count on 1200 per month times 12. (Excl water)
    Let us know what is separately metered and what is not. The more you have separate the better it is so Tenants can have utilities in their own name. And even if not separately metered try to ad in a fixed amount per monthly possible.
     
  12. Myron Bas
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    Myron Bas New Member REIN Member

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    Electric is separately metered, gas is not.. Hmm ok, that chews through my margin for error, now its not a good deal, its priced correctly according to how the market looks.. The question now is ," will people move to save $200/ month?" In a town with vacancies like this, I liked the deal because of the competitive rents I could offer.. Now its almost guaranteed that it will have negative cashflow..
     
  13. Martin1968
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    Martin1968 Member Registered

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    ok so gas and water/sewer only 1 meter. i would think those 2 together about $150 per month per unit. (100.00 gas and $50.00 water average) Electric is for the tenants.
    You could try for a flat rate of $100.00 per month on top of the rent. you would have to work this in to lease contract. It could be tricky in a small market with lots of vacancy. If renters are price driven it likely won’t work. If your units would be standouts as well as a nice clean curb appeal and quality trumps price, you might be on the upside.
     
  14. TangoWhiskey
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    TangoWhiskey Active Member Registered

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    I personally focus on small towns as the cashflow lets me live in the south of France year round but I only go ahead after a very in-depth process looking at the economics of a large regional area with int'l airport and transport all that stuff and then ranking the small towns within an hour to pick the best of the best - I generally want at least one large preferably federal government institution in the town that is getting on-going reinvestment to make sure its not leaving (military bases are tops that way). If not federal I want to see a regional secondary hospital.
    All that to say looking at Wabasca and knowing northern Alberta Peace River way I would be real careful of the demographics I see in that area.
    Still, at a low enough price almost anything can be a great deal BUT that's mostly because you have to be sure that you have your exit in mind and that means you have to sell it on as a great deal to be sure of moving it. Options would include offering a huge VTB or even the entire first mortgage interest only if the buyer has real skin in the game. 25K a door, despite seeming like a screaming deal, can be a lot better still. I know a guy that got a 26 unit 6 building portfolio deal at 8K per door with tenants in a town with a hospital - and some of the units were good! Take that deal to a hard money lender all day long. So you quite likely could negotiate further given your latest discoveries.
    My two cents on mgmt - since there are no real mgmt options I have always opted for trying to only buy when there is enough scale to pay someone well to do it. I don't think you're there at 6 units unless you really luck out with someone who lives in the building and comes to think of it as their home for years to come. I would love to hear more about Thomas' Fox Creek experience, I would have suggested considering buying more units in the area if you could get them also at a great price that allows for easy exit, you'll need ideally at least 20 or so.
    But don't get invested in the deal emotionally and always be willing to walk. Easy to buy, very hard to sell in these places.
    :)
     
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  15. garry lee
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    garry lee New Member REIN Member

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    There some heavy oil expansion on the go right now. Cenovous, MEG Energy and Suncor are expanding a few SAGD plants right now. They expand by building gathering lines (above ground pipeline) to new well pads usually approx 10 wells per pad. Foster creek fort Mac and Christina lake (Conklin) are a few of the locations I know that are expanding. Low cost and easy to modualrize, I see this a major growth area with oil above 50 dollars.
     
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  16. Myron Bas
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    Myron Bas New Member REIN Member

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    Thanks, update on it: I shut the deal down because the competitive rent advantage is gone.. I am keeping an eye on the region though, keep my finger on the pulse of oil.. Will focus on growing my trucking business, as well as look for another business to buy or maybe partner up with someone for a multifamily deal, if my spring acquisition plan doesn't pan out.. Need to grow my revenues be able to get to big enough multifamily deals that can be managed by themselves.. Looks like Grant Cardone recommends minimum 16 units? I talked to a truck company owner, who is located on the east side of the Duvernay shale formation, and he said the oil companies are planning to drill 25 wells in the area! Maybe something to watch for.. Land sales have skyrocketed..
     
  17. Martin1968
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    Martin1968 Member Registered

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    Congratulations on that decision! it’s a wise one!!

    If there is one thing i may say to you, and if you will take it from me (or any of us) just slow it down a little, start smaller. There is a lot to learn! I might be wrong but i would think you will find very few people on the forum that started with a 16 suiter as an investment. I get it that you want to make money, and you want to make it fast! But getting rich quick doesn’t really exist, have patience!

    But stick with it. Lots of good opportunities out there (whether oil is $45 or at $145)

    Cheers!
     
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  18. Tina Myrvang
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    Tina Myrvang Client Care Specialist Staff Member REIN Member

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    Advantages of Buying Multi-Family Homes
    • Potential to cash flow better because there are many more units purchased for a slightly lower price per unit – typically.
    • More than 1 rent to help cover your operating costs – if one unit is vacant there are other units bringing in revenue that will help you out.
    • Often a broader range of possible tenants to choose from as the per unit rental cost is usually less than a SFH
    • If 1 unit becomes vacant, you can work on it (paint, put in new floors, etc.) but still be collecting rent from your other units/tenants
    • Economies of scale: for instance, your PM will likely charge you less (as a percentage of the rent) on a 2 or 3 or more MFH than he/she will on a SFH. Furthermore, your utility costs will likely not be 3 times the amount (if it’s a 3 unit MFH) even though there are 3 tenants living there.
    • On a per unit basis are less expensive than SFH
    • Generally, your rent to price ratio is higher on MFH than on SFH (this can often equate to more cash flow)
    Disadvantages of Buying Multi-Family Homes
    • Maintenance tends to be higher as there often is more wear and tear because there can be more people living in the building, more appliances to service/replace, and often more tenant turnover.
    • Tenant placement costs tend to be higher as MFH’s often have more turnover than SFH.
    • Tend to appreciate slightly slower than SFH
    • More limited buyer pool when it’s time to sell
    • May take a lot longer to sell because of the limited buyer pool
    • Two words: Tenant squabbles!
    • Financing can be more onerous.
    • From the advantages and disadvantages you can see there are plenty of reasons for and against both types so let’s give you a real life example of SFH vs. MFH and you can decide which is the better buy!

    Before deciding if multi-family homes are the better investment because they have the potential for better cash flow, first ask yourself these questions:

    1. Who will be responding to any potential tenant squabbles (me or a Professional Property Manager)?
    2. Does the MFH have legal or illegal suites? If they’re illegal (which many are), just prepare yourself that if a noisy neighbor complains, that you may have to work with the City to either legalize the suite (can be costly) or decommission it. Either way, this may eat up a chunk of your time, energy, and money. So, be sure you don’t mind doing this.
    3. Who’s going to be paying all the heat, hydro, and electricity bills? If each suite isn’t metered, you’ll want to determine if you can get your tenants to pay their portion or you’ll have to include it in the rent.
    What about before deciding investing in single family homes is the way to go. Ask yourself:

    1. Can I carry the costs (mortgage, electricity, taxes, insurance, etc.) when there are any vacancy’s?
    2. Do I want to pay a Property Manager to manage just 1 tenant or can I handle the odd late night repair phone call and some minor maintenance issues?
    3. Do I strive for more liquidity in my investments (the ability to sell faster)?
    4. Do I want the potential for greater appreciation or just monthly cash flow?

    By digging into what type of property suits you best is usually the best strategy you can have, rather than listening to all the “talkers” out there about which is the better investment. And yes, that even includes yours truly! So get out there and decide for yourself which is best….in all likelihood, whichever one you think fits your skills, personality, and aptitude, the better investment it will be for you.

    Finally,

    When looking into investing in a specific town, you need to look at key drivers that effect the market and the growth of your investment. I suggest looking into the following to determine whether the areas in the East Kootenay region are not only viable economically, but that they fit your investments goals.


    REIN examines the following criteria:

    • GDP
    • Job creation
    • Population growth
    • Access to post-secondary education
    • Accessibility: the movement of goods and people to attract jobs and residents
      • Airports
      • Ports
      • Highways
      • Bridges
    • Infrastructure that supports the community:
      • Hospitals and emergency services
      • Water and sewers
      • Schools
     
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  19. BrentRoberts
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    BrentRoberts New Member REIN Member

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    I have owned properties up north and empty buildings are very expensive to maintain, manage and to heat.
    An empty building with no mortgage is very expensive. As Thomas mentioned even a building for a dollar may not be a good deal.
    There is obviously A reason why this building is in foreclosure.
    As my father likes to remind me, if you cannot find a great property management companies you cannot afford to buy it. I will speak to the local property management company and ask them why they think this building is in foreclosure and 50% empty and has been on the market for two years.
     
  20. TangoWhiskey
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    TangoWhiskey Active Member Registered

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    That is probably true but I think is a mis-understanding of what I see as the true risks in real estate investing. We started with a 24 unit building as our first investment and by buying big you benefit from the bank and CMHC, if they get involved, acting as your out-sourced due diligence. Buying bigger multifamily means you aren't the real loan guarantee anymore, its the building, and they look closely to be sure its worth mortgaging and insuring. I understand in the large markets you won't get CMHC accepting purchase price as market price - but they do in small rural markets, and if you're looking at Wabasca of all places I guarantee you can find much better places to buy that CMHC will accept the purchase price as market price. Essentially you are arbitraging federal policies when you use CMHC insurance on MF in small towns, you are allowing the big city REITS who use it for the reasons outlined below, to create or subsidize value the small investor can take advantage of.
    The leverage and removal of refinance risk against a lower value- which IS your real #1 risk in real estate, despite it getting so little airtime or awareness in REIN and real estate investing media and education generally - is why CMHC is great. Go find the places they have insured 85 % mortgages ie accepted purchase price as market price - buy one or two being sure they generate 10 % cash on cash, which they probably do to get that acceptance by CMHC, make sure the market you are buying in has government institutions to manage your risk - and Voila! as the French would say, Freedom. And I mean freedom. Manager in place, no refinance risk, ample cashflow to attract investors. Then go find another non-correlated market somewhere else to buy another one to manage/diversify your risk and that's it, done for life if you want. Go live in Tahiti, or the south of France, or a condo in the heart of UBC :)
    Its the same amount of time to find a duplex as a 20 plex, all the same professionals, a little more expensive of course, but its the same principles, its just the economics and scale are so much more efficient. The main hurdle is fear, which is most people's major problem in life - I was a paramedic, after going into 00's of people's lives and houses on the most intimate level possible, you learn a few things about how we think and the thinking that produces 95 % of outcomes. The real magic is finding those small markets that have a great risk profile and still meet the CMHC 85 % underwriting for purchase price in todays much higher value world. I'm developing an on-line training course on how to do it accompanied by an analysis of the places in Canada you still see 85 % CMHC financings, this information is so valuable. This is hedge fund level info.
    MF is an awesome conservative investing niche - its why Grant Cardone is in it - linked with great leverage. Find the spots the leverage goes furthest in a risk managed way. Then look for the buildings in those areas and approach all the owners. Tell the people in your circles what you're doing and why, and ask who's interested in participating. Sooner or later, and probably sooner, you'll set yourself free.... and then everyone will tell you you were lucky :)
     
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