Can someone tell me if this is a good deal? 9 unit complex.

[nubiwan]

Was wondering if I could get come comments on an opportunity I am looking at. Building is located in an area of reasonable growth for the next 10-15 years due to off shore development, and associated manufacturing spin offs for the town. Not to mention rental demand for the region.




I currently own and manage several single family (one and two unit) properties, so this would be my first venture into a multi unit. The property is also located about 1.5 hours from where I live, so 3rd party property management might be a distinct consideration for me.



Details Of Building.


Building has distinct appeal of Ocean views. Age approximately 10 years old.



9 units mix of 1 bedroom, 4 x 2 bedroom 4 x 3 bedroom ` some units are fully furnished, others are not. Some units include utilities, and others are POU.


Here are monthly financials










REVENUE $ 8,275.00


Light $ 456.26


Telephone $ 229.00


Cable $ 201.49


Water/property tax $ 341.00


Pole Light $ 46.94


Washer/Dryer $ 124.00





Revenue Remaining $ 6,876.00




ASKING Price $597,000


Monthly rents range from $750 for a one bedroom, to $1200 for a furnished 3 bedroom. The furniture in pictures I have seen is up to date, and modern looking, as are the units in the building.





I have not taken this inquiry any further than this board at present. I have requested more information from the seller(s). Don't know what kind of insurance I should expec to pay for this building, an what kind of financing terms I should expect.



Was hoping someone on here might be able to offer some opinions on that, an whether or not this is worth further investigation.



For my part, I am in a position to put 10-15% down in the deal, but that comes from equity in my other holdings. It is therefore a big consideration for me to take on something like this. I am basically looking at financing 100%.





Thanks


NUBI

 

[Rickson9]

Speaking only for myself, I would consider the building at least $120k over priced.

 

[Thomas Beyer]

[quote user=nubiwan]

.. Ocean views. Age approximately 10 years old.



REVENUE $ 8,275.00



ASKING Price $597,000




This is an excellent deal IF the area has upside (and does not implode like some small towns could do) and IF the rents are sustainable without too much add'l investment (due to property condition and area demand/supply) !



Expenses to budget for, and missing in your analysis are:

property insurance: around $1500/year to $2000/year

Management: about 12% of rent

R&M of around $7000/year incl. basic lawncare, cleaning and snow shoveling

Utilities ?? What is POU ? Budget $1200/unit/yr if paid by landlord. Find out exactly who pays for:

• hot water
• cold water
• sewer
• electricity
  heat
  garbage
  recycling

You could lower these expenses by doing this work yourself like the seller seems to be doing as he does not show it. He likely forgot insurance or chose not to get it.



A local credit union might lend you 75-80% on it, perhaps higher with CMHC, up to 85% LTV.



Looks like a good deal, but check out those IFs related to area, competition and property condition.

 

[bizaro86]

[quote user=ThomasBeyer]

Expenses to budget for, and missing in your analysis are:

property insurance: around $1500/year

Management: about 12% of rent

R&M of around $7000/year






Probably wouldn't hurt to also budget for things like snow removal, lawn care, maintenance, garbage collection, and common area cleaning. (Depending on whether you have grass/common areas, obviously).



Seems to me like that definitely has potential.



Regards,



Michael

 

[MarkTorgerson]

Your purchase price is $66,333/door.



Your monthy rent averages to $919/door.



This in itself is a fantastic indicator.



Your Cap Rate after management, maintenanace, and insurance will still be between 8 and 10% depending on who pays for the utilities.



Again, another great indicator.



Provided the building is in good condition and is in an area with solid indicators for economic development, I would consider this a great deal.

 

[nubiwan]

[quote user=Rickson9]Speaking only for myself, I would consider the building at least $120k over priced.

Can I ask why? Others seem to think this a decent deal.

 

[nubiwan]

[quote user=ThomasBeyer][quote user=nubiwan]



.. Ocean views. Age approximately 10 years old.







REVENUE $ 8,275.00







ASKING Price $597,000











This is an excellent deal IF the area has upside (and does not implode like some small towns could do) and IF the rents are sustainable without too much add'l investment (due to property condition and area demand/supply) !







Expenses to budget for, and missing in your analysis are:



property insurance: around $1500/year to $2000/year



Management: about 12% of rent



R&M of around $7000/year incl. basic lawncare, cleaning and snow shoveling



Utilities ?? What is POU ? Budget $1200/unit/yr if paid by landlord. Find out exactly who pays for:

• hot water
  
  
  
• cold water
  
  
  
• sewer
  
  
  
• electricity
  
  
  
  heat
  
  
  
  garbage
  
  
  
  recycling
  
  

You could lower these expenses by doing this work yourself like the seller seems to be doing as he does not show it. He likely forgot insurance or chose not to get it.







A local credit union might lend you 75-80% on it, perhaps higher with CMHC, up to 85% LTV.







Looks like a good deal, but check out those IFs related to area, competition and property condition.

Thanks Thomas. The utilities shown are what the owner has been paying for the units that do not include utilities in the rent. POU is a local acronym for Pay Own Utilities (i.e. tenant pays). Yes, I will find out the maintenance charges. I think the only issue would be snow clearing. All other items you mentioned (garbage, cold water & Sewer) would fall under property taxes I indicated.









I fancy my insruance rate would be higher. I pay around $1700 for a 2400 square foot house with a $300K replacement and $2500 deductible. That is with Dominion. Pretty sure they do other markets cheaper, but here, rates are pretty high from what I have compared elsewhere. Insurance rates are a relative scam here in Newoundland, and there is no way I can get around it. At least, none I have found. Not sure why that is to be honest. Are renters in Newfoundland more troublesome than in Ontario? I somehow doubt it. I would not be surprised I ended up paying a $4000-5000 (or higher) annual premium for this place. Perhaps it is different for multi-tenant units, but I doubt it.









One last question, based on the numbers, what interest rate would you think I might get if I came up with either 15 or even 25% down.









Thanks




Tony

 

[Thomas Beyer]

[quote user=nubiwan]interest rate would you think I might get if I came up with either 15 or even 25% down.


Commercial rates are sub 3% with CMHC.



low 3% range for a 75% LTV conventional mortgage. Ask a large lender (like TD or First National) and a local credit union.



Assuming decent condition CMHC might be an option, but I would not bank on 15% down (pardon the pun). CMHC lends up to 85% of their value, which is often far below purchase price !

 

[richardkp]

Hi Tony

I guess from this...

[quote user=nubiwan]Insurance rates are a relative scam here in Newfoundland, and there is no way I can get around it. At least, none I have found. Not sure why that is to be honest. Are renters in Newfoundland more troublesome than in Ontario?
that the property is in Newfoundland??

I know from the CMHC Atlantic outlook that the findamentals up there are very strong so I would say that the building as a 9 unit would be good based on the numbers.

As already mentioned a 8-10% CAP is very nice. How far away from St Johns is the property and what is the rental market / tenant profile like there?

The fact that there are more 2 beds and 3 beds is a plus as well as 1 beds are the faster turnovers.

Biggest unknown is the area and tenant type.

 

[nubiwan]

The town is akin to Blue Mountain or Collingwood in Ontario. That is, quite rural, and the closest winter skiing resort to St. Johns. It is also the gateway to one of our National Parks. It is about 1.5 hour drive.



There is a Hebron offshore GBS project just starting within a half hour drive of the property. I live about 1 hour the other way near St. Johns. House prices within a 15 minute radius of the area have skyrocketed. Availability is nil. Workers are getting a $115 per diem for accommodation if they live offsite. Or, they can live on camps onsite. I just did a 36 month RTO to a young couple who are starting work on the Hebron project. It will mean about 5 years work for them. During that time, a secondary project would commence for a further 5 years. They believe it to guarantee them 10 years employment.



Depending on the climate (in 10 years), I have considered an exit strategy of turning the units into condos, and selling them off. Not sure how straight forward that process might be, and need to get more informed about.



I just read Thomas response on rates. Is he suggesting a 3% interest rate on this building? I was of the opinion commercial rates would be higher than residential by a fair bit. I have been expecting 8-10% or nmore. Obviously, a crucial expense for me.



I also wanted to re-iterate that I would be using personal equity to finance the down payment, so I am essentially financing 100%. for me, having 20-25% down would not be an issue. I am just financing theentire amount anyway. Does this STILL make it worth looking at?



Thanks

Tony

 

[Thomas Beyer]

[quote user=nubiwan] .. I
am just financing theentire amount anyway. Does this STILL make it worth looking at?









Looking is easy.



The critical part is executing.



Thus, step one: have the cash in a corporation.

Step 2: write an offer. In parallel:

Step 3: get an opinion from a bank or credit union or mortgage broker what the financing could look like.

Step 4: finalize an offer (i.e. get it accepted by the seller. Remember: an offer is an option to buy but an obligation to sell !!!)

Step 5: do your DD and verify numbers and state of repairs.

Step 6: get a firm mortgage commitment

Step 7: waive conditions if all lines up.

Step 8: set up a PM

Step 9: close



A 8-10% CAP rate asset always makes sense to buy IF the rents are at least flat, the vacancies do not go up and the asset's state of repair is known.



What are you waiting for ?



Get moving to step 1, 2 and 3 !

 

[nubiwan]

I hear you loud and clear. Waiting for my money to get freed up, and also having a better idea of exactly what I am getting into to be honest. This being my first multi-unit opportunity.



Done some of these steps - sort of. Questions I am asking here are pertinent to me even bothering to pursue it. If interest rates at 3% are realistic for this deal, then it makes it a different propostion than I was initially expecting.



This property is not even on the market yet, and I will probably have the first crack at it. I am still waiting further information from the seller, and will plan to get out and see it in the next week or so. I was rather hoping to have an idea of income potential before I did that. If the numbers do not add up "for me" then I won't bother wasting people's time.



I have called my bank Scotia, who told me that this would have to go through their commercial section. The comnmercial section indicated that they only do loans over $500K. That all sounds catch 22. Looks like I might need to go elsewhere (broker).



The down payment I will have is tied up in another property I own, at present. I am in the process of refinancing it, a process that will take me a little while to complete.



Might sound like a lot of reasons to stall, but that's the truth of it.

 

[Thomas Beyer]

[quote user=nubiwan]

Might sound like a lot of reasons to stall, but that's the truth of it.
There are always more reasons to not do anything: the weather, the wife, the cash situation, the mood, the numbers, the economic crises de jour, the stock market, the bond rates, the job market ..



For a small deal in a small community credit unions work best. Start there. Ideally the local one. Or try a mortgage broker. usually they want a 1-2% fee upfront in cash.



residential and commercial rates for multi-family for 5 years are around 3% today, less with CMHC.

 

[nubiwan]

OK thanks Thomas - my other concern is that this deal would basically tie up a considerable percentage of my HLOC in one property.



To this point in time, I have typically bought a single family or 2 apartment home, renovated, rented, then refinanced, then start again. Doing that, I've been able to keep a decent cash surplus ($200-250K) in my HLOC. As well as good monthly cash flow. I am at least at $300-400 per door on my single families. At least!



25 % down on this deal would be a large chunk from my HLOC, so it is a big game change for me.



Thanks Again

Tony

 

[MarkTorgerson]

Why don't you secure the deal. Give yourself lots of time before conditions are removed. Then go out and find a money partner.

You will still hold equity in the property without the risk exposure. If you can't find a money partner, then you simply don't close.

 

[Rickson9]

[quote user=NUBIWAN]Can I ask why? Others seem to think this a decent deal.
Different people have different standards. A good deal for one person is not a good deal for another. 'Good' is subjective anyway. This deal wouldn't be good for me. That's all.

 

[biancahamiltonrealtor]

Looks like an excellent opportunity to me.

Lock up the deal, with conditions, so you have time to investigate and still be secure of your option to buy.

I know that one bedrooms have higher turnover but I question the rentability of three bedrooms units.

Is it common to rent such large units in a building?

What kind of people rent such units as opposed to just renting a house?

How much is a SFH to rent in the immediate area?



good luck

Bianca

 

[Nir]

It's a good deal subject to building being in an ok-good condition and ok-good rental area with AT LEAST 2 good PMs in the city or better. Estimated CAP = ($6876-$2000*)x12/$597,000=9.8%
*2000 because unfortunately few items like vacancy, repair, maintenance, management insurance etc. are not included in the expense list you received.
Regards, N.

 

[Al Verwey]

OK thanks Thomas - my other concern is that this deal would basically tie up a considerable percentage of my HLOC in one property.

To this point in time, I have typically bought a single family or 2 apartment home, renovated, rented, then refinanced, then start again. Doing that, I've been able to keep a decent cash surplus ($200-250K) in my HLOC. As well as good monthly cash flow. I am at least at $300-400 per door on my single families. At least!

25 % down on this deal would be a large chunk from my HLOC, so it is a big game change for me.
Tony

Tony, how did this turn out?