First JV Purchase - 4-plex or 8-plex?

[Nir]

Hi All,

I purchased a few Plexes already and now a good friend is interested in purchasing with me.

Do you recommend I look for a 4-plex or 8-plex? Is 4 plex a good start or should I avoid
less than say 8 units due to the fact it`s a JV making it not profitable enough in case
of 4-plexes or smaller?

(Please assume CAP of around 7-8% in both cases, approximately 2 hours from Toronto.)

Thanks,
Neil

 

[NorthernAlex]

Hey Neil.

IF your Money partner is willing to JV in a 8plex or 4plex with you.... and the numbers are making sense in both: Why not going for the 8plex. I also think that financing might be easier (commercial, because bigger than 6 units).
"knock knock!"
"Whos there?"
"Opportunity."

I would definitely go for the 8plex if my JV Partner would be okay with it!

 

[Nir]

Thanks Alex. by the way, what makes you think financing an 8-plex might be easier?

 

[NorthernAlex]

As I learned here (and experienced by myself) will a bank rate a real estate deal with 5+ units as a commercial deal. They will focus more on the deal and not at the buyer/lender like they do with residential.

My first property I bought was a commercial deal (5plex)- it was easier for me as a new self employed immigrant to Canada to qualify for a commercial deal (purchase price 285k and got the mortgage) than a residential deal (duplex I wanted to buy for 160k- mortgage refused) because of my missing credit history and not existing credit scoring...

 

[Nir]

QUOTE (NorthernAlex @ Jul 9 2009, 08:07 PM) As I learned here (and experienced by myself) will a bank rate a real estate deal with 5+ units as a commercial deal. They will focus more on the deal and not at the buyer/lender like they do with residential.

My first property I bought was a commercial deal (5plex)- it was easier for me as a new self employed immigrant to Canada to qualify for a commercial deal (purchase price 285k and got the mortgage) than a residential deal (duplex I wanted to buy for 160k- mortgage refused) because of my missing credit history and not existing credit scoring...

Hi Alex, interesting point!

For some reason when the topic is raised, the feedback from most investors/mortgage brokers here, is that it is more difficult to be approved for commercial. perhaps just my perception, but that`s also the feeling I got in a quickstart event when Mr. Peter Kinch presented the different sandboxes as if from easy to more difficult to play in. Yes, you may have to put more down on commercial (say 8-plex) but I think you might be right Alex - being approved is not generally more difficult.

 

[Thomas Beyer]

bigger is better !

why?
a) more efficient to manage
b) less cost per door due to less land per door, less boiler/door, less roof per door, etc. .... i.e. more efficient to build

Downside: slightly less liquid .. i.e. less buyers for larger complexes ..

If you can avoid 4-, 8- or 12-plexes althogether that would be ideal .. start with a 20 plex if possible ..

 

[Nir]

Hello Thomas,

Someone I know mentioned something similar: he has the option to buy a 12-plex but decided to wait till he can purchase 25-plex.

Regards,
Neil

 

[housingrental]

Another issue is in many markets lower plex`s are selling for much lower cap rates...
ie 100 / unit in a five plex and 70/unit with the exact same units with a 20 plex, etc..


QUOTE (investmart @ Jul 10 2009, 08:24 PM) Hello Thomas,

Someone I know mentioned something similar: he has the option to buy a 12-plex but decided to wait till he can purchase 25-plex.

Regards,
Neil

 

[NorthernAlex]

Since being in Northern Ontario I haven`t seen a 12+ plex in my area listed in ICX. Are these bigger units sold differently or just not available?

 

[Nir]

QUOTE (NorthernAlex @ Jul 11 2009, 09:50 AM) Since being in Northern Ontario I haven`t seen a 12+ plex in my area listed in ICX. Are these bigger units sold differently or just not available?

Both. there aren`t many and some are sold differently. i.e. you know a RE guy who knows someone who wants sells..
Also, I think there are sites other than http://www.icx.ca/index.aspx for that purpose. Cheers.

 

[Thomas Beyer]

QUOTE (NorthernAlex @ Jul 11 2009, 10:50 AM) .. I haven`t seen a 12+ plex in my area listed in ICX. ..

besides ICX there is also a commercial section on MLS.

But both have a very small subset of actual listing only.

You must network yourself into the broker network or the owners. Still an "old boys network" .. many private listings !

Once you`ve picked a market, get to know as many commercial realtors as possible, run ads that you buy and contact owner`s and landlord associations !