How I optimized cash flow of a ghetto property in Winnipeg

[RealtorAssist]

This is what I did with the 16th property I`ve worked on in Winnipeg. Do you see anything else to maximize?3 Parts:1. Financial statement Before2. Financial statement After 3. How I will get all my money back1. Current Financials: (What the current owners are doing and why they wanted to sell)Purchase Price: $95,000 – Triplex

Income:
2 Bedroom: $600/month
2 Bedroom: $500/month
1 Bedroom: $400/month
Total Income: $1500/month

Expenses:
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Heat/Gas: $340/month
Water/Electrical: $170/month
Total Expenses: $845/month

Net Operating Income: $1500 – $845 = $655/month (Net Operating Income does not include mortgage expense)

Mortgage $95,000 @4.3% 35 year amortization = $437/month
Cash Flow = Net operating income – Mortgage Expense
= $655/month – $437/month
= $218/month Positive cash flow

This assumes no vacancy and no repairs and the tenants are nice. The 3 owners of this property, had the property for 1 year and got sick of it. No Cash Flow + Work = No Fun

2. New Financials:

I will now invest 20k to 25k and split all utilities and make the place look good to attract high quality tenants.

New Income:
2 Bedroom: $700/month
2 Bedroom: $700/month
1 Bedroom: $550/month
Total Income: $1950/month

New Expenses (tenants are now paying all utilities):
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Total Expense: $325/month

Net Operating Income: $1950 – $325 = $1625/month

Mortgage $95,000 @2.25% interest only = $197/month
Cash Flow = Net operating income – Mortgage Expense = $1625/month – $197/month = $1428/month Positive cash flow

3. How I will get all my money back

Increased Net Operating Income from $655/month to $1428/month. This 220% increase will allow me to get a new appraisal and increase the value of the property from 95k +20k fixes to 150k ish minimum. I will then refinance at 80% loan to value ($150,000 x 80% = $120,000) and get out my down payment and the 20k in fixes back.

Based on the income method of appraisal the property should increase in value 220%, but there are limitations with this as its residential and I’m in the process to find out exactly what will happen. The issue is this is a residential property getting valued with the income method, which is usually not done.

Result:
Net Cash Investment: $0 (got it all back from refinance)
Positive Cash Flow: $1400 (More realistic is $1100 to $1200 as it`s in the ghetto of Winnipeg. There will be issues with tenants and vancancy)
Just got new tax assessment @ $126,000. This is good for the banks. Up 30% from last year.

Anything else you suggest?

If you like talking optimizing cash flow feel free to call me!

Robert Klein
Mortgage Broker, Real Estate Investor,
Co-Founder of RealtorAssist.ca
A: 2465 Bellevue Avenue
West Vancouver, BC, V7V 1E1
C: 778.896.6732 | F:604.648.9701
Email: [email protected]
Last Blog Post: http://realtorassist.ca/blog/what-lowest-m...ment-available/

 

[Nicola]

QUOTE (RealtorAssist @ Dec 4 2010, 10:20 AM)

This is what I did with the 16th property I`ve worked on in Winnipeg. Do you see anything else to maximize?3 Parts:1. Financial statement Before2. Financial statement After 3. How I will get all my money back1. Current Financials: (What the current owners are doing and why they wanted to sell)Purchase Price: $95,000 – Triplex

Income:
2 Bedroom: $600/month
2 Bedroom: $500/month
1 Bedroom: $400/month
Total Income: $1500/month

Expenses:
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Heat/Gas: $340/month
Water/Electrical: $170/month
Total Expenses: $845/month

Net Operating Income: $1500 – $845 = $655/month (Net Operating Income does not include mortgage expense)

Mortgage $95,000 @4.3% 35 year amortization = $437/month
Cash Flow = Net operating income – Mortgage Expense
= $655/month – $437/month
= $218/month Positive cash flow

This assumes no vacancy and no repairs and the tenants are nice. The 3 owners of this property, had the property for 1 year and got sick of it. No Cash Flow + Work = No Fun

2. New Financials:

I will now invest 20k to 25k and split all utilities and make the place look good to attract high quality tenants.

New Income:
2 Bedroom: $700/month
2 Bedroom: $700/month
1 Bedroom: $550/month
Total Income: $1950/month

New Expenses (tenants are now paying all utilities):
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Total Expense: $325/month

Net Operating Income: $1950 – $325 = $1625/month

Mortgage $95,000 @2.25% interest only = $197/month
Cash Flow = Net operating income – Mortgage Expense = $1625/month – $197/month = $1428/month Positive cash flow

3. How I will get all my money back

Increased Net Operating Income from $655/month to $1428/month. This 220% increase will allow me to get a new appraisal and increase the value of the property from 95k +20k fixes to 150k ish minimum. I will then refinance at 80% loan to value ($150,000 x 80% = $120,000) and get out my down payment and the 20k in fixes back.

Based on the income method of appraisal the property should increase in value 220%, but there are limitations with this as its residential and I’m in the process to find out exactly what will happen. The issue is this is a residential property getting valued with the income method, which is usually not done.

Result:
Net Cash Investment: $0 (got it all back from refinance)
Positive Cash Flow: $1400 (More realistic is $1100 to $1200 as it`s in the ghetto of Winnipeg. There will be issues with tenants and vancancy)
Just got new tax assessment @ $126,000. This is good for the banks. Up 30% from last year.

Anything else you suggest?

If you like talking optimizing cash flow feel free to call me!

Robert Klein
Mortgage Broker, Real Estate Investor,
Co-Founder of RealtorAssist.ca
A: 2465 Bellevue Avenue
West Vancouver, BC, V7V 1E1
C: 778.896.6732 | F:604.648.9701
Email: [email protected]
Last Blog Post: http://realtorassist.ca/blog/what-lowest-m...ment-available/

Interesting, but some questions:

What kinds of things will you do to make it attractive to high quality tenants (for approx $8000/unit)?

Will there be three furnaces/boilers? Otherwise, how will you split the cost of gas? Will you have separate metering for all utilities?

If this is in the "ghetto", how will you attract high quality tenants?

 

[RealtorAssist]

QUOTE (Nicola @ Dec 3 2010, 06:44 PM) Interesting, but some questions:

What kinds of things will you do to make it attractive to high quality tenants (for approx $8000/unit)?

Will there be three furnaces/boilers? Otherwise, how will you split the cost of gas? Will you have separate metering for all utilities?

If this is in the "ghetto", how will you attract high quality tenants?

In that area, the goal is to make my property better then others. New paint / carpets / minor kitchen and bathroom upgrades. To fix up the unit, it`s around $3500 on average. $10,000 for 3 units. The real costs is splitting hydro and water. Hydro will be $10 to $12 k minimum and water $3k.

I will be able to attract, the best of the worst. The goal would be tenants with kids and maybe jobs. A lot of my units are welfare based.

Robert Klein
Mortgage Broker, Real Estate Investor,
Co-Founder of RealtorAssist.ca
A: 2465 Bellevue Avenue
West Vancouver, BC, V7V 1E1
C: 778.896.6732 | F:604.648.9701
Email: [email protected]
VIDEO BLOG POST: http://realtorassist.ca/blog/what-lowest-m...ment-available/

 

[Berubeland]

Lol @ I will be able to attract the best of the worst....

I did the same myself in South Oshawa, we had the best townhouses around, the property went from 25% vacancy to full and waiting list, we put up the rents $100 each. The owner had not renovated in 10 years, we did floors, we did kitchens, we did paint. About 6K per suite.

Even in a bad area there are always good people... you have to have superior product to attract them. Word gets around that its a good place and reasonably priced.

 

[RealtorAssist]

QUOTE (Berubeland @ Dec 3 2010, 08:19 PM) Lol @ I will be able to attract the best of the worst....

I did the same myself in South Oshawa, we had the best townhouses around, the property went from 25% vacancy to full and waiting list, we put up the rents $100 each. The owner had not renovated in 10 years, we did floors, we did kitchens, we did paint. About 6K per suite.

Even in a bad area there are always good people... you have to have superior product to attract them. Word gets around that its a good place and reasonably priced.

Yup, it`s the only way to do it!

 

[housingrental]

That`s a great project
Tough to find those numbers in the last few years in the GTA

 

[yellowsugga]

Can you please explain why you chose to only include the interest only portion of the mortgage payment in the "after" finacials? Total mortgage payment should be something in the 340$/month range @ 2.5% over 35 years. Just curious.

 

[fumbrunner]

It certainly is doable as I have done it a number of times.  Do yourself a favour and keep the water bill in your name.  Unlike hydro, outstanding water bills do not follow the tenants.  As for finding " high quality tenants", there are certain areas in Winnipeg where this is absolutely impossible.  I`m not sure if this property is in one of these areas or not, but given the price I suspect it is.  Also, be ready to pay a) higher property management fees and b) allocated a ton to repairs if the property is in one of these areas.  I had a tenant bust all the windows in a suite, for example ($4000).

Cashflow could be great in areas like this.  But they are a big PIA as well.  Be prepared for the risks if you proceed.  If you want me to comment on the area, send me an email and I`ll fill you in: gggmmmar (at) hotmail (dot) com. I could recommend some locate PM firms as well.

 

[RandyDalton]

QUOTE (Berubeland @ Dec 3 2010, 10:19 PM) Lol @ I will be able to attract the best of the worst....

I did the same myself in South Oshawa, we had the best townhouses around, the property went from 25% vacancy to full and waiting list, we put up the rents $100 each. The owner had not renovated in 10 years, we did floors, we did kitchens, we did paint. About 6K per suite.

Even in a bad area there are always good people... you have to have superior product to attract them. Word gets around that its a good place and reasonably priced.

Hi,

I am finding much the same experience in Hamilton, and trust me there are some bad areas in Hamilton for sure. In a quiet (er) market I am able to get people to line up at the doors to get in and check out a place with multiple applications received after a one hour showing. The secret for me at least has been a superior product and a reasonable price to attract them.

This sounds like a great project. I agree to do floors, kitchens, and paint as these are all important. However I would add baths to the mix. Also skip separating out the water.

Regards...Randy D.

 

[RealtorAssist]

QUOTE (yellowsugga @ Dec 7 2010, 02:44 PM) Can you please explain why you chose to only include the interest only portion of the mortgage payment in the "after" finacials? Total mortgage payment should be something in the 340$/month range @ 2.5% over 35 years. Just curious.

Because there is a program out there that allows interest only payments at prime - .75%. You need 20% equity to do it. Here is a video of me explaining it and how I found it: http://www.realtorassist.ca/vid/lowest-mor...payment-canada/

 

[RealtorAssist]

QUOTE (fumbrunner @ Dec 7 2010, 07:50 PM) It certainly is doable as I have done it a number of times.  Do yourself a favour and keep the water bill in your name.  Unlike hydro, outstanding water bills do not follow the tenants.  As for finding " high quality tenants", there are certain areas in Winnipeg where this is absolutely impossible.  I`m not sure if this property is in one of these areas or not, but given the price I suspect it is.  Also, be ready to pay a) higher property management fees and b) allocated a ton to repairs if the property is in one of these areas.  I had a tenant bust all the windows in a suite, for example ($4000).

Cashflow could be great in areas like this.  But they are a big PIA as well.  Be prepared for the risks if you proceed.  If you want me to comment on the area, send me an email and I`ll fill you in: gggmmmar (at) hotmail (dot) com. I could recommend some locate PM firms as well.

Great comments and I agree. I`ve done 17 of these in Winnipeg. We have found that if we renovate and make it nicer then the others, we can choose our tenants. We are able to get the best of the worst. Without renovating, we got the worst of the worst.

Property management is 10%, but more realistically 12% to 15%.

With somewhat decent tenants have not had the water issue come up yet. Had it before with bad tenants.

Robert Klein
Mortgage Broker, Real Estate Investor,
Co-Founder of RealtorAssist.ca
A: 2465 Bellevue Avenue
West Vancouver, BC, V7V 1E1
C: 778.896.6732 | F:604.648.9701
Email: [email protected]
Last Blog Post: http://realtorassist.ca/blog/what-lowest-m...ment-available/

 

[fumbrunner]

QUOTE (RealtorAssist @ Dec 8 2010, 12:56 PM) Great comments and I agree. I`ve done 17 of these in Winnipeg. We have found that if we renovate and make it nicer then the others, we can choose our tenants.

One thing of note, the "best of the worst" typically will not want to pay their own utilities is a) its electric baseboard heat and b) if the suite has single pane original windows.  I have had success with baseboard heat if the suite appears to retain its heat well (ie.. newer windows).  If you are finding good tenants with only 10K per suite, with electric baseboards and old windows, then I salute you.


Good luck!  Lots of opportunity out there.  Lots of pitfalls as well in the North End....

 

[RealtorAssist]

QUOTE (fumbrunner @ Dec 8 2010, 04:11 PM) One thing of note, the "best of the worst" typically will not want to pay their own utilities is a) its electric baseboard heat and b) if the suite has single pane original windows.  I have had success with baseboard heat if the suite appears to retain its heat well (ie.. newer windows).  If you are finding good tenants with only 10K per suite, with electric baseboards and old windows, then I salute you.


Good luck!  Lots of opportunity out there.  Lots of pitfalls as well in the North End....

I would say 5k/suite fix up. Other 15k is for redoing electrical/plumbing

 

[FourBell]

QUOTE (fumbrunner @ Dec 8 2010, 05:11 PM) Good luck! Lots of opportunity out there. Lots of pitfalls as well in the North End....


I agree with Gerry on this statement 100%. This area has excellent cash flow potential, and, like all areas of the city proper screening of tenants by you, or your property management company helps mitigate future issues.

I`ve seen someone`s real estate investment career come to an end shortly after it started because after they renovated a property, they were eager to get a warm body in the unit to get some cashflow. He accepted one of the first applicants for tenancy with very little screening. A few months later the unit was destroyed, and the tenant was no where to be found.

 

[bizaro86]

There was a post in this thread earlier today asking for a more specific breakdown on what renovations are being done for 30k, as that`s quite the accomplishment to get it done for that. I would be interested in that as well, specifically if the OP is doing the windows in that budget.

On an unrelated note, is it possible to delete your post? I`m sure it was here, but it`s gone now.

Regards,

Michael

 

[crystalm000]

just a side note - not sure if you guys located in Winnipeg are aware of the Winnipeg REIN meetings that are being held Monday evenings every two weeks? We always welcome new people to join us. They are currently on hold until January, but if you are interested in joining us please email me at mcpherson dot crystal at gmail dot com and I can give you more details...hope to see you out!

 

[FourBell]

QUOTE (crystalm000 @ Dec 15 2010, 09:27 PM) just a side note - not sure if you guys located in Winnipeg are aware of the Winnipeg REIN meetings that are being held Monday evenings every two weeks? We always welcome new people to join us. They are currently on hold until January, but if you are interested in joining us please email me at mcpherson dot crystal at gmail dot com and I can give you more details...hope to see you out!


Email sent

 

[mikewilsoninsurance]

Hi Robert,I am a local Insurance Broker and have been interested in real estate investing for many years. Are you and your investors interested in working together to take care of your Home Insurance needs?If so, please let me know.ThanksMike Wilson </FONT>

This is what I did with the 16th property I`ve worked on in Winnipeg. Do you see anything else to maximize?

3 Parts:

1. Financial statement Before
2. Financial statement After
3. How I will get all my money back

1. Current Financials: (What the current owners are doing and why they wanted to sell)

Purchase Price: $95,000 – Triplex

Income:
2 Bedroom: $600/month
2 Bedroom: $500/month
1 Bedroom: $400/month
Total Income: $1500/month

Expenses:
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Heat/Gas: $340/month
Water/Electrical: $170/month
Total Expenses: $845/month

Net Operating Income: $1500 – $845 = $655/month (Net Operating Income does not include mortgage expense)

Mortgage $95,000 @4.3% 35 year amortization = $437/month
Cash Flow = Net operating income – Mortgage Expense[/b]
= $655/month – $437/month
= $218/month Positive cash flow

This assumes no vacancy and no repairs and the tenants are nice. The 3 owners of this property, had the property for 1 year and got sick of it. No Cash Flow + Work = No Fun

2. New Financials:[/b]

I will now invest 20k to 25k and split all utilities and make the place look good to attract high quality tenants.

New Income:[/b]
2 Bedroom: $700/month
2 Bedroom: $700/month
1 Bedroom: $550/month
Total Income: $1950/month

New Expenses (tenants are now paying all utilities):[/b]
Tax: $95/month
Insurance: $80/month
Property Management: $150/month
Total Expense: $325/month[/b]

Net Operating Income:[/b] $1950 – $325 = $1625/month

Mortgage $95,000 @2.25% interest only = $197/month
Cash Flow = Net operating income – Mortgage Expense = $1625/month – $197/month = $1428/month Positive cash flow

3. How I will get all my money back[/b]

Increased Net Operating Income from $655/month to $1428/month. This 220% increase will allow me to get a new appraisal and increase the value of the property from 95k +20k fixes to 150k ish minimum. I will then refinance at 80% loan to value ($150,000 x 80% = $120,000) and get out my down payment and the 20k in fixes back.
Based on the income method of appraisal the property should increase in value 220%, but there are limitations with this as its residential and I`m in the process to find out exactly what will happen. The issue is this is a residential property getting valued with the income method, which is usually not done.

Result:
Net Cash Investment: $0 (got it all back from refinance)
Positive Cash Flow: $1400 (More realistic is $1100 to $1200 as it`s in the ghetto of Winnipeg. There will be issues with tenants and vancancy)
Just got new tax assessment @ $126,000. This is good for the banks. Up 30% from last year.

Anything else you suggest?

If you like talking optimizing cash flow feel free to call me!

Robert Klein
Mortgage Broker, Real Estate Investor,
Co-Founder of RealtorAssist.ca
A: 2465 Bellevue Avenue
West Vancouver, BC, V7V 1E1
C: 778.896.6732 | F:604.648.9701
Email: [email protected]
Last Blog Post: http://realtorassist.ca/blog/what-lowest-m...ment-available/