Jump Start with an Apartment Building?

[2ndstory]

Looking for some opinions regarding an apartment building purchase. I am in the early stages of my portfolio building. Right now I have a four-plex that cash flows positive but barely. I bought it before I had a clear plan. Now my plan is to start adding properties to my portfolio with good cashflow. As a result, I think I will convert the 4-plex to condos and sell them to get more seed capital.

Anyway, I`ve been looking at a couple houses with good cash flow potential and was getting ready to write some offers when suddenly an opportunity to purchase a building with 18 units comes along. The price is good, around 400k partly because the area it is in, and the cash flow is very healthy. After all financing, I should be looking at 1500 to 1800 a month.

Now as tempting as this may be, I`m wondering if it is the wisest route to go. I would probably have to buy 6 to 8 single family properties to create this cashflow, but....

Thoughts?

Nik

 

[housingrental]

Hi NikWithout more information its hard to say much
Very generally:
I`d prefer one building over multiple SFH
Ensure you have a large reserve fund to cover expenses
Re "because the area" - im assuming gritty housing? how realistic is your assumptions for:
rental amount
vacancy
rent collection
damages
- will you have intoxicated tenant damaging property, scaring off good current and future potential tenants, and hit only 75% of your target until eviction process gone through? will rents and occupancy be possible as planned in that area?


Do you have a skilled property manager with expertise in that particular segment - buildings in questionable area`s?

 

[Thomas Beyer]

QUOTE (2ndstory @ Jun 28 2010, 06:57 AM) ... a building with 18 units comes along. The price is good, around 400k partly because the area it is in, and the cash flow is very healthy. ..
low 20`s / door ? that is unusually low !

where is this ? suite size ? rents / month per unit ?

deferred maintenance ?

check out the area .. is this manageable by you or preferably a qualified 3rd party ?

 

[2ndstory]

QUOTE (ThomasBeyer @ Jun 29 2010, 12:56 AM) low 20`s / door ? that is unusually low !

where is this ? suite size ? rents / month per unit ?

deferred maintenance ?

check out the area .. is this manageable by you or preferably a qualified 3rd party ?

Here is the proforma that the vendor supplied.

6 – bachelors; 9 - 1 bedroom; 3 - 2 bedrooms About ten year old roof but still in great shape.New exterior paint and parapet siding; Most suites have been redecorated (see below)Rent is not registered, increased by 2.5% from year previous as set by tenancy board Coin operated laundry; tenants on a month to month lease mostly long term tenants Needs some TLC but shows great potential and good ROIall work orders completed. The block is very clean and quiet.
Ste. #TypeRent
1 1 bedroom$540.00
2 2 bedroom$590.00
3 Bachelor$340.00
4 Bachelor$328.00
5 1 Bedroom!--/fontc-->$336.00
6 1 Bedroom$540.00
7 2 Bedroom$374.00
8 Bachelor$335.00
10 Bachelor$330.00
11 1 Bedroom$540.00
14 1 Bedroom$304.00
15 2 Bedroom$512.00
16 Bachelor$335.00
17 Bachelor$340.00
18 1 Bedroom$336.00
A an>1 Bedroom (basement)$410.00
B 1 Bedroom (basement)$410.00
19 1 Bedroom (basement)$266.00

Rent income /month$7,166.00
Other income (laundry)$375.49 for 2009
[/size]Income /year$86,367.49

nt-family:Times New Roman">EXPENSES
Manitoba Hydro $21,033.33
Water $3,000.76
Property Tax$4,274.00
Insurance$3,464.00
Care taking$2,000.00
total expenses$33,772.09
amily:Arial">maintenance$9,000.00 set at $500/suite
total$42,772.09
revenue$43,595.40

all utilities are included on the rent. gas heat with coin-op washer and dryer (coin-amatic) security lock on front door. tenants required a front door key that they pay for $50 dollars a key refunded when they move out.
the building have been renovated all through out and right now i am painting the hallways about 90% complate with the basement floor that needs painting. Boiler has just been refrurbished on december 2009 and i have the receipts.

 

[jcab256]

QUOTE (2ndstory @ Jun 29 2010, 07:41 AM) maintenance$9,000.00 set at $500/suite


Maybe I am overly conservative, but I budget $800 per suite. Depending on where this is, possibly higher depending on the "clientel" in the area.

 

[housingrental]

Hi Nik
I don`t know your area
A 2 bedroom apartment renting at $374 utilities included? I`m left wondering what kind of tenants live there / how horrendous is the setup / condition... by needs TLC does it need $30K / unit of work? or?

 

[bizaro86]

QUOTE (housingrental @ Jun 29 2010, 12:27 PM) Hi Nik
I don`t know your area
A 2 bedroom apartment renting at $374 utilities included? I`m left wondering what kind of tenants live there / how horrendous is the setup / condition... by needs TLC does it need $30K / unit of work? or?

Could just be a long-term tenant, since they are in a rent controlled area. Further investigation would be required, because I doubt 374/month does too much more than cover operating costs on a 2 bedroom apartment, if it even does that.

Michael

 

[Thomas Beyer]

QUOTE (2ndstory @ Jun 29 2010, 07:41 AM) ..
the building have been renovated all through out and right now i am painting the hallways about 90% complate with the basement floor that needs painting. Boiler has just been refrurbished on december 2009 and i have the receipts.
buildings is one thing .. AREA is another !

Do you wish to own a B+ property in a C- area ?

Did you walk the streets around it in day time .. and at night .. 2-3 times ?

Is this an improving area ?

did you check 2-3 year rents collected ?

 

[2ndstory]

QUOTE (ThomasBeyer @ Jun 29 2010, 07:45 PM) buildings is one thing .. AREA is another !

Do you wish to own a B+ property in a C- area ?

Did you walk the streets around it in day time .. and at night .. 2-3 times ?

Is this an improving area ?

did you check 2-3 year rents collected ?


I called my friend at city planning. There have been many complaints against this building mostly regarding bed bugs and general filth.

The area near it is Waterfront Drive which has had a huge boom, but I don`t think the ripple effect has quite hit this area.

The building right next to it is totally renovated but by the government. The government here in Manitoba / Winnipeg likes to put nice buildings in the middle of a sh**pile. If it had been renovated by a private investor, I think that would carry more weight and indicate speculation.

Walk the streets at night? I`d be nervous.

Nik

 

[DonCampbell]

Hey Thomas,

It is GREAT that you are confirmed to share a bunch of your wisdom at the Multi-Family Investing Conference coming up in August 28th and 29th. It is already filling up and we now have investors (both REIN and non-REIN) coming from all across the country and now from the US. I guess they also see the opportunities in Canada

.

I think one of the best parts is going to be the Panel Discussion / debate occuring on Saturday with You, myself, financing expert, CMHC expert, legal expert and a couple of veteran multi-family investors. That part in and of itself will bust some myths!

And from all of us on this forum, thanks for all your direct, no B.S. insights and we look forward to hearing many more at the Conference.

If anyone is interested the event is on this forum`s calendar, with some preliminary discussion points and topics already posted there:

Multi-Family Investing Bootcamp

 

[Berubeland]

Bedbugs cost an awful lot of money to treat. I had ONE single suite in Oshawa with bedbugs and it cost $750 in total to treat. It had to be treated three times and the tenant complied with everything and had to get new furniture even.

If you have several infested suites and they spread...

 

[housingrental]

Re above on bed bugs
Lots of fun to be had potentially
You really need tenant co-operation in preparation or they won`t be succseul
And bed bugs can move easily in crevices like baseboard and migrate from suite to suite
So the one time $4000 expense and hassle can be a regular occurrence + tenant issues from this

 

[Nir]

Berubeland, Adam, how do you prevent this potential huge bed bugs headache from happening in any apartment building?
you are raising a potential problem that can happen in any building, not just the one Nik considered above.
In other words, it can sound as if you are against apartment buildings in general although I don`t think that is what you meant. Thanks.

 

[LukasWywrot]

Don,

Will there be an event similar to the Multi Family Investing Conference out here in the Greater Toronto area?

Myself and I am sure many other poeple would be interested in a seminar of this caliber with the speakers that will be in attendance.

Thanks,

Luke

QUOTE (DonCampbell @ Jun 30 2010, 09:43 AM) Hey Thomas,

It is GREAT that you are confirmed to share a bunch of your wisdom at the Multi-Family Investing Conference coming up in August 28th and 29th. It is already filling up and we now have investors (both REIN and non-REIN) coming from all across the country and now from the US. I guess they also see the opportunities in Canada

.

I think one of the best parts is going to be the Panel Discussion / debate occuring on Saturday with You, myself, financing expert, CMHC expert, legal expert and a couple of veteran multi-family investors. That part in and of itself will bust some myths!

And from all of us on this forum, thanks for all your direct, no B.S. insights and we look forward to hearing many more at the Conference.

If anyone is interested the event is on this forum`s calendar, with some preliminary discussion points and topics already posted there:

Multi-Family Investing Bootcamp

 

[Thomas Beyer]

QUOTE (LukasWywrot @ Jul 6 2010, 04:59 AM) Don,
Will there be an event similar to the Multi Family Investing Conference out here in the Greater Toronto area?

Myself and I am sure many other poeple would be interested in a seminar of this caliber with the speakers that will be in attendance.

Thanks,

Luke
Don puts together great seminars with very worthwhile content .. as Ive both taught with him (and will do so again that weekend in August) as well as attended many many of his muti-family and single family education events .. and they are SUPER CHEAP for the value you will receive .. as one mistake avoided .. or one lesson learned in multi-family would save or make you $10,000 on a small building and $100,000 on a large one !

Multi-family investments should not be attempted by yourself with less than 250K cash. It costs you maybe $800 (flight plus 2 nights of hotel + 4 beer) .. and I wished I had this course available when I started my apartment building investment career over 10 years ago ..

IT IS A MUST ATTEND EVENT for folks that are serious ..

When the student is ready, the teacher will appear .. but sometimes in a different city than where you live !

 

[housingrental]

No generally pro buildings
Be realistic about the costs of difficulties you`ll face on taking on a property with issues!
QUOTE (investmart @ Jul 5 2010, 10:23 PM) Berubeland, Adam, how do you prevent this potential huge bed bugs headache from happening in any apartment building?
you are raising a potential problem that can happen in any building, not just the one Nik considered above.
In other words, it can sound as if you are against apartment buildings in general although I don`t think that is what you meant. Thanks.

 

[Thomas Beyer]

QUOTE (housingrental @ Jul 6 2010, 11:31 AM) No generally pro buildings
Be realistic about the costs of difficulties you`ll face on taking on a property with issues!
issues .. or opportunities for improvements / profit ?

One man`s problems are another man`s profits ! [ask any car mechanic .. or lawyer .. or dentist .. ]

 

[housingrental]

You`re correct Thomas
"Or property manager"

QUOTE (ThomasBeyer @ Jul 6 2010, 03:32 PM) issues .. or opportunities for improvements / profit ?

One man`s problems are another man`s profits ! [ask any car mechanic .. or lawyer .. or dentist .. ]

 

[DonCampbell]

Hey Luke,



This event was moved earlier in the REIN season in response to the requests during the recent member survey. It is designed to be a national Multi-family conference as that way we can get all of these busy experts/investors in one room at one time... and that was tough as it is.



We have a bunch of Members from all over the country (and US) coming in for it. If there is to be one in the East (which we hope) it would be late 2011.



Flights are cheap, Edmonton in August is amazing and I guarantee that the time and effort is going to be VERY VERY well worth it... or REIN wouldn't be doing it.



Hope to see you there.



BTW, a major (not Multi-family) national Conference is being put together in Ontario in response to another major request theme in the Member Survey. Official Announcement of this soon...



... but this Multi-Family Bootcamp is worth the flight and time,

especially with the recent mortgage and market changes. (AND YOU ATTEND FREE AS A REIN MEMBER)



Here are the initial details (much much more released at the end of the week at same link)


Don,



Will there be an event similar to the Multi Family Investing Conference out here in the Greater Toronto area?

 

[RebeccaBryan]

QUOTE (investmart @ Jul 5 2010, 08:23 PM) Berubeland, Adam, how do you prevent this potential huge bed bugs headache from happening in any apartment building?
you are raising a potential problem that can happen in any building, not just the one Nik considered above.
In other words, it can sound as if you are against apartment buildings in general although I don`t think that is what you meant. Thanks.


Bed bugs isn`t something you should take lightly. Treat for them promptly or they can spread. I know we`ve had a couple of cases but we treated them quickly and kept on top of it so they didn`t get out of hand. We treat suites just before a tenant moves in sometimes just to take extra precautions but that`s usually only if we have had that particular suite infested before. And it doesn`t hurt to question new tenants about whether they have ever had bed bugs.