desperately need advice

[Blue]

Long story short. We made our first purchase of a Revenue property. We are in a small market that is very hot right now. Problem is this causes bidding wars, which obviously is not good when purchasing revenue property.
When all is said and done, it seems the property will not be able to carry itself, revenue versus expenses. We will be inserting our own money into covering taxes and other expenses.

Did we make a bad business purchase?

We need advice, What to do? Sell and start again, or hold and see what the market does.

Thanks for you time.

T.W.

 

[PaulPoulsen]

QUOTE (Blue @ Feb 15 2008, 07:44 PM) Long story short. We made our first purchase of a Revenue property. We are in a small market that is very hot right now. Problem is this causes bidding wars, which obviously is not good when purchasing revenue property.
When all is said and done, it seems the property will not be able to carry itself, revenue versus expenses. We will be inserting our own money into covering taxes and other expenses.

Did we make a bad business purchase?

We need advice, What to do? Sell and start again, or hold and see what the market does.

Thanks for you time.

T.W.

There are so many variables and it really depends on your comfort level.

You say the property won`t carry itself. If you`re talking $25 a month, then maybe you`d be willing to carry it for awhile until the rent catches up with the costs. But if it`s running you $500 a month, that may be a different story. However, that said, maybe you`re the last of the dot-com billionaires or a professional hockey player and $500 is a drop in the bucket. My personal rule of thumb is that if a particular property isn`t able to cashflow and that shortfall effects my ability to buy the next unit, I need to 1) not waste my time with it; or 2) come up with a unique way to market it so that it looks after itself.

The one firm piece of advice I can give you is to always go in with a well thought out plan, all the way from the initial purchase right down to your exit strategy, whether it be a day from now or a decade. While there are no crystal balls that predict the future with any degree of certainty, you should always be able to back-up why you think a certain property in a certain area is going to perform in a certain way. Look for solid facts, numbers and statistics and stay away from "hot tips" from a guy that knows a guy.

If you`re nervous about your current situation, that probably means you weren`t as thorough in your due diligence as you could have been. Get cracking and do that research now before you hit the panic button.

 

[Blue]

QUOTE (PaulPoulsen @ Feb 16 2008, 02:22 AM) There are so many variables and it really depends on your comfort level.

You say the property won`t carry itself. If you`re talking $25 a month, then maybe you`d be willing to carry it for awhile until the rent catches up with the costs. But if it`s running you $500 a month, that may be a different story. However, that said, maybe you`re the last of the dot-com billionaires or a professional hockey player and $500 is a drop in the bucket. My personal rule of thumb is that if a particular property isn`t able to cashflow and that shortfall effects my ability to buy the next unit, I need to 1) not waste my time with it; or 2) come up with a unique way to market it so that it looks after itself.

The one firm piece of advice I can give you is to always go in with a well thought out plan, all the way from the initial purchase right down to your exit strategy, whether it be a day from now or a decade. While there are no crystal balls that predict the future with any degree of certainty, you should always be able to back-up why you think a certain property in a certain area is going to perform in a certain way. Look for solid facts, numbers and statistics and stay away from "hot tips" from a guy that knows a guy.

If you`re nervous about your current situation, that probably means you weren`t as thorough in your due diligence as you could have been. Get cracking and do that research now before you hit the panic button.

Hi Paul,
Thank you for your response. You are correct when you mentioned due diligence, there are a few expenses that we over looked. I really don`t think it is time to panic, we can easily cover these expenses but I guess I`m hung up on the positive cash flow, and yes it will turn itself into positive in a short time. It really comes down to the fact that maybe I started questioning our decision, we purchased in an area that will attract a young family type tenant but we overlooked the fact that the purchase price was borderline with being able to recover the mortgage payment in the particular rental area.

This first experience is the deciding factor weather we will become active members. The minute I return home I will be forwarding my application. It is obvious that with a little extra guidance we may have started in a more comfortable spot. We will miss the quick start but will look forward to the next monthly seminar.

Thanks again,
T.W.

 

[Thomas Beyer]

QUOTE (Blue @ Feb 15 2008, 07:44 PM) Long story short ...When all is said and done, it seems the property will not be able to carry itself, revenue versus expenses. We will be inserting our own money into covering taxes and other expenses.

...

T.W.

it is NOT unusual that in the first 3-9 month of a revenue property you lose money, as frequently the rent is too low. So: can you raise rents to market (keeping in mind provincial landlord-tenant act and local market conditions) and cash-flow positive ? Can you renovate the place and raise the rents even more ? If not: GET OUT FAST as you likely paid too much !

Send me details on the property if you wish .. I can give you some ballpark figures !

 

[Blue]

QUOTE (thomasbeyer2000 @ Feb 16 2008, 07:15 PM) it is NOT unusual that in the first 3-9 month of a revenue property you lose money, as frequently the rent is too low. So: can you raise rents to market (keeping in mind provincial landlord-tenant act and local market conditions) and cash-flow positive ? Can you renovate the place and raise the rents even more ? If not: GET OUT FAST as you likely paid too much !

Send me details on the property if you wish .. I can give you some ballpark figures !

Hi Thomas,

The property is a 1050 sq/ft bungalow , 3 + 1 , fully developed in updated decor (could be brought up to current) and very well maintained ,water heater and furnace are 2 years old.detached garage, it is in a mature family neighbourhood, close to all amenities and only blocks away from an elementary school. We are in Saskatoon, and the market is growing very fast here. Our research showed us that family rentals were climbing anywhere from $1200 to $1500 in these neighbourhoods. We have not put a tenant in place yet, but when we add up all the numbers we will need to generate at least $1300 to cover our butts. The mistake we are worried about is that maybe we did not leave ourselves enough breathing room. We are prepared to carry it for a while to see if everything pans out the way we hoped, if not then it will hit the market in the summer when the grass is green. Does it sound to You like we are in the right ball park?

Thank you for your time.

T.W.
Tony