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Queen Mary Park Multi Family

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wolstenholme

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Hello



I'm looking for someone with multifamily experience in Queen Mary Park, Edmonton. (20 units)



1. Thoughts on the area, now and for a 5 year hold

2. Average purchase price per door (1 and 2 bed)

3. Minimum cap rate (ie. acceptable for this area)





Any advice or suggestions would be appreciated.



Regards,

Dave Wolstenholme
 
Hi,



I should add two things.



The gross rate multiplier on this particular unit is 9.5%



The actual mix is 22 units as opposed to 20.



Breakdown of the units (12 one bed, 6 2 bed, 4 bachelor)



Regards
 
I used to own 4 buildings there .. All between 18 and 24 units !

Sold them all for a profit after a 2-4 year hold with mainly negative cash-flow due to ONGOING vacancies, evictions and upgrades !

This area still hasn't changed much.

Ok to buy if you don't overpay.

Look for 7.5% CAP rate using 10% vacancy and at least $3500 in expenses per unit per year.

This would usually mean 70's/door or 80's for pretty properties which is VERY (!!!) hard but not impossible to find !

Don't believe the hype, the expense lies or "condo conversion" potential stories told by realtors !!

Ok to buy .. But only at the right LOW price due to vacancies and sub-prime area issues !
 
[quote user=ThomasBeyer]ONGOING vacancies, evictions and upgrades ! This area still hasn't changed much. Ok to buy if you don't overpay. Look for 7.5% CAP rate using 10% vacancy


Was your vacancy/eviction experience similar for all unit types, or were the 2 bedrooms easier to keep full than the 1 bedrooms and 1 bedrooms easier to keep full than the studios?



Michael
 
... Was your vacancy/eviction experience similar for all unit types, or were the 2 bedrooms easier to keep full than the 1 bedrooms and 1 bedrooms easier to keep full than the studios? ..l
Click to expand...
yes, 2BRs, on average, have lower turnover .. but also cost more ! Most buildings have a mix. Buildings with no problems, fully upgraded and easily rentale 2BRs with balconies and excellent caretakers hardly ever come up for sale .. or if, they are VERY expensive.



Buying a used building is always a tradeoff of CAP rate, upgrades required, area upside (or lack thereof), deferred maintenance, rental upside (if any), ... that's why REIN spend 1 1/2 days in August 2010 on it to scratch/teach the surface of it !
 
[quote user=ThomasBeyer]yes, 2BRs, on average, have lower turnover .. but also cost more


I suppose there are always tradeoffs. Thank you for being candid. I buy condos (as opposed to whole buildings) and it doesn't seem like there's a huge price difference in Queen Mary Park between 1 and 2 bedrooms. I'll probably continue to buy in Calgary and not Edmonton, but it seems like there are some opportunities there, and was curious how much you could offset the neighbourhood factor by buying only 2 bedrooms.



Michael
 
[quote user=bizaro86]doesn't seem like there's a huge price difference in Queen Mary Park between 1 and 2 bedrooms.


then why buy 1BRs as rents are $125 to $150/lower .. although I do not see how can one make money in QMP if one pays 125+/door !
 
Sorry, by the same price I mean the same CAP rate. If a 1 bed and a 2 bed are both trading at a 6% cap rate, buying the 1 bedroom doesn't offer any extra return to compensate for the extra management headache. In that case it would make sense to buy the 2 bedroom unit, because the extra cost is compensated for by the extra rent, and you have an easier management experience, reducing real estate related stress and increasing time available for the important things in life.



I certainly wouldn't pay 125 per door for anything in Queen Mary Park. I haven't run numbers in too much detail, but I doubt I'd be willing to pay more than 80-90k per door for a two bedroom. There's a lot of supply in that neighbourhood, and it will hurt rents and resale prices. If that means I don't buy anything there, then my money will go elsewhere.



Regards,



Michael
 
First off...thank you all for the feedback. Irrespective of whether or not this particular building makes sense, the feedback has been helpful for "back of the envelope

evaluation. Given that, here are my calculations and assumptions:



Actual Numbers:



Ask: 2.16M

1.96 assumable (blended rate on a first and second)



Monthly Revenue (100% occupancy): $15,800



So..using Thomas's math and not doing any consideration for market rent adjustments:



Adjusted Monthly Revenue considering vacancy of 10%: $14,200

Annual Revenue: $170,400

Number of Units: 22



Rough Annual expense calculation ($3000*22) = $66,000

NOI=103,600

Therefore: For a 7.5 CAP rate, purchase price must be equal or lower than (NOI/.075)



or 1.392M



At the ask of 2.16M and using the cash flow and expenses above I come out with a 4.8

(103,600/2.16M)



Regards
 
I calculate an average unit price of $98,000 for mostly 1 bedroom units. A single2-bedroom unit in that area, depending on its state goes for $90,000 (run down and dumped on market) to $130,00 (renovated with new state of art kitchen).



Considering you are buying wholesale single bedrooms, your purchase price is a bit high in my opinion. So typical unit rent should be around $700 per month. Utilities and maintenance around $325.00 per month (count on big pest control bills). Plus management fees and $60 property taxes. Monthly expenses: approx. $415 per unit. NOI is around $630-415 = $215 including 10% (optimistic) vacancy. Out of this you have to pay your financing.



Not counting occaisional major renovations. Hmmm... Golden Egg?
 
[quote user=wolstenholme] ..or 1.392M ..


indeed .. 60's/door .. but no one is selling at that price .. so the sellers will likely wait until rents go up which they will in Edmonton over the next 2-3 years .. but there may be the occasional motivated seller in the 60's to low 70's/door ! Therefore: be careful what you pay .. We walked from a property @ 81/door in upgraded condition last summer due to vacancies and area concerns ! We also walked from another property at 115/door for $1 cash-to-mortgage ! Some sellers are overlevered as they overpaid in 2007 or 2008 and got very high mortgages ! So even $1 down might overpay !



It's a class B- (at best), more likely a C area .. and in class C areas you can make money .. but only if you pay a very low price !
 
So to pick this thread up again - a 1$ cash-to-mortgage would mean that the sellers paid so much for the property that they are willing to walk away from the down payment so long as they also walk away from the mortgage. And since buildings in Edm trade for some 300K+ more than what the building gets CMHC underwriting for, the buyer probably lost 200-300 K or so per million of building value.



Is this about right?



Thanks



Tris W.
 
[quote user=TangoWhiskey]Is this about right? likely the seller paid a lot less .. and got a new mortgage 2-3 years ago and pulled out ALL of their equity and then some ..



so for $1 he is trying to shed himself of a liability, namely a personal guarantee on a mortgage and likely negative monthly cash-flow !!



So, ensure that you are buying an asset .. and not a liability !!
 
Tris, that's about right.



There's also a couple of multi-family foreclosures around since people paid or refianced based on boom-time conversion pricing. Now they're just looking to bail, but the prices they need are still fairly high.
 
Queen Mary Park and Centeral McDougal have some very good properties that sell for top dollar and a few very bad properties that sell for bargain prices.



List prices range from $76K to $120K. per door or per suite



Properties that actually have sold in the past year range in price from $69,900 to $108,160 per door.

Average is about $90,000 per door.



The properties are selling for about 4.8 Cap Rate, but the bankers are only financing at 6-7%
 
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