Need help to understand the big picture of buying this property...

[acurAspec]

Hi everyone,



I found a 17 unit building in my area. Link is: http://www.realtor.ca/propertyDetails.aspx?propertyId=10681016&PidKey=-1923868740



The property sells for $1,420,000

General Description


Excellent Investment. 17 Units, 14-2 Bedrooms And 3-1 Bedroom + Den, Monthly Income $12,991.00. Lockers, Good Size Units, Good Tenants, Clean Building, Roof Done In 2009, Balconies Repaired In 2009. Air Conditioner Units Belongs To The Tenants, Pay $30.00 Monthly When In Use. **** EXTRAS **** Gb&E, Hwt(O), 2 Coin Operated Dryers And Washers, Extinguishers, Stoves And Fridges (Excluding The Ones Belonging To The Tenants)

I would like someone to help me understand how could one attain this property by using very little-- if any-- of his own money.



How much would interest rate be on a 17 unit property?



Would it be 30% downpayment requirement?



If one was to borrow from private investors, what rate would be expected and what amount would you want to borrow privately? I would assume you would want to have as much as possible in the mortgage and as little as possible by private lender.



What would you try to offer if it is listed at 1,420,000?



What minimal cash flow would you expect to have after purchasing this property?



I guess what i'm trying to see is, if one of you experienced investors got ahold of this property, how would you handle it... I own a triplex now and have had it for 15 months and I would like to picture how would a novice like me acquire a property this big to get cashflow from it by using other people's money.



Thanks!!



Sasha

 

[Thomas Beyer]

Interest rate on a 5 year mortgage would be roughly: low 3% (with CMHC) to high 3% range with non-CMHC money .. assuming 25-30% down.



Say $1.1M .. $40,000/yr in interest .. more or less or $65,000 P&I



Unclear are expenses .. assuming $3600-$4000/unit/yr or $65,000/yr [possibly higher due to property taxes and/or utilities] on an income of $155,000 you'd net about $90,000 in NOI .. before capital upgrades and mortgage payments !



No private lender would lend you all the down payment ! It must be equity from your own jeans or JV partners !



Assume 25% down .. thus NO CASH FLOW as you'd easily spend $25,000/yr in capital upgrades/renovations unless building is pristine !



More cash-flow with over 25% down !



85/door or list price seems an adequate price if area is OK and no major capital items that need immediate work (roof, boiler, hallway carpets, windows, pipes, ..) and if NOI is indeed as advertised [which it is not in reality, frequently]

 

[DanieLL]

I know that building.

It has issues with operating expenses, which are too high for whatever reason.

It does not cash flow, even with 25% down.



I think its overpriced by $200k, at least.

There is a reason why it staid on the market for more than 1 year. : )

 

[Jeffery123]

I think you should have a complete survey report regarding this in your area. And of course, it would be cash flowing, as per the rate liable to your area. It depends the option you go for.

 

[housingrental]

My thoughts:



I'm not a big fan of that area



I'm not a big fan of that price per unit for that building



If you have less than two years experience with a triplex, why not wait longer for:



a) more cash



b) more time to elapse to provide you a broader perspective

 

[acurAspec]

Thomas: Those are very helpful details! So a commercial property can be financed with CMHC? I was not aware.



Adam: I do agree that less than 2 years experience is nothing to rave about and that a bit more patience will probably be beneficial.



I am planning on refinancing the mortgage when i complete the renovations enough to bring me over 25% equity hopefully. This way I can extract some more $$ and get into the next multi-unit. I hope to do it in the next 12-18 months as I assume the housing market and the economy will start to bounce back up in the US which will improve conditions everywhere.



Adam, are we able to see proposed construction in Kitchener anywhere?? I would be curious to see what is planned in the next 2-3 years?



Thanks again everyone for your input as always!



Sasha

 

[Thomas Beyer]

CMHC insures residential properties, including "commercial" apartment buildings. The term "commercial" is often used for office, strip malls or tail centers excl. Apartment buildings.

Buy, upgrade, re-fi is a great way to build wealth if executed well ! I've done it .. Oh .. Maybe 20 times ...