Scenario review by experienced investor

[peihouserental]

Hi, I `ve been readin through the posts here for a few days and there is a lot of great information here! I am looking at a property and was wondeirng if I could have opinions please.
I`m looking at a 5 unit that is currently full bringing in $2636.39/mth. The building has recent updates such as furnance, expanded parking, some flooring and is structurally sound (from visual inspection only at this point). 2009 net income of 14921.20. Asking price is $137,000. I have the downpayment room on an LOC and from the numbers it could be paid off in 4-5 years barring any major repairs.
I currently have a primary residence we just purchased and a bungalow rental (top floor, basement unfinished right now). I`m wondering if I should look for an investor for the 5 unit down payment and focus my own on finishing the basement which would be sustantially less than the down payment, or avoid the 5 unit at this time until I am more experienced. There is a caretaker for the 5 unit as well.
From what I`ve been reading here, with the exception of a few opinions, it looks like an investor would pay the down payment + closing, then the rentals would pay him/her back the initial plus an agreed upon %, and then once that is taken care of the property would be owned 50/50?
Any advice/wisdom would be greatly appreciated
Thanks
Greg

 

[bizaro86]

On the surface, buying this seems like a good deal to me. My biggest questions would be regarding its location. The rents (~500/month per unit) and the price seem very low to me. Are there condition issues in an old building, or location issues present here? Also, are the expenses adequate? What city are you in, and how old is the building? The more information available, the better advice you`ll get.

With rents that low (and always, really) you need to make sure you haven`t underestimated your expenses. Consider everything, insurance, property taxes, caretaker, utilities, maintenance, property management, vacancy, etc, etc.

As to what you should do with a limited amount of money and time, that comes down to your personal comfort level. Without knowing your situation in detail, my gut feel would be that you`d get a better return buying an additional property than adding a suite to the one you already own, but it would be at a higher risk, since you`d be leveraging your downpayment funds with a mortgage.

I hope that gives you some food for thought, and I`m sure others will chime in.

Michael

 

[Thomas Beyer]

look at TRUE expenses .. about $4000/unit per year or 20K for a 5-plex .. possibly higher in high tax provinces, assuming utilities are paid by landlord.

I assume this is a small town .. so the question is: is there value and rental upside ?

What kind of mortgage would you qualify for ?

Who would manage it in a small town .. as PMs are hard to find in small towns.

Assuming you can get 80% or even 90% financing why not find the 10-20% in your own jeans (LOC, re-fi of existing house, cash ...) rather than giving up 50% of any upside or rental income ?

 

[peihouserental]

Thank you for your response. The city is Summerside, PEI. Prices for rent here are likely considerably lower than you are used to seeing as the cost of living is quite low. It looks to be in line with the other 5 properties I`m looking at in that area. I have their 2009 sheet here with heat, utilities, garbage, water/sewer, insuarance, taxes. caretaker, repairs/maintenance, advertising, and misc. that they provided the realtor. It has a new furnace, new oil tank, interior doors and newer roof. The vacancy is something I will have to remember to factor in....is there an industry `rule of thumb` number to use for vacancy rates?
Again, thanks for your reply!!

 

[peihouserental]

look at TRUE expenses .. about $4000/unit per year or 20K for a 5-plex .. possibly higher in high tax provinces, assuming utilities are paid by landlord.


Your numbers are very close! According to this statement they came in at $17, 315.46 or 3463 per unit!! So I will go with your $4000 to account for any numbers they didn`t give to realtor to be safe. Thanks for the advice!!

 

[bizaro86]

QUOTE (peihouserental @ May 11 2010, 11:14 AM) The city is Summerside, PEI.

Interesting. Do you live in the area (to manage it yourself) or have contact with someone in the area who can manage it professionally for you?

How is the economy in Summerside? Is it growing, stagnant, or declining? One other question, more for my own curiosity, is there any seasonality to the rental market in PEI? It seems like you might have a stronger market in the summer, as tourists and tourist industry workers come to province. Is that the case? If not, how do the people working in that sector support themselves in the off-season?

I`m genuinely curious, as the world map in my basement with pins on it for every place I`ve been doesn`t include any in Atlantic Canada.

Michael

PS. How is the landlord-tenant law there? Always more due-diligence questions to ask yourself!

 

[peihouserental]

QUOTE (bizaro86 @ May 11 2010, 03:18 PM) Interesting. Do you live in the area (to manage it yourself) or have contact with someone in the area who can manage it professionally for you?

How is the economy in Summerside? Is it growing, stagnant, or declining? One other question, more for my own curiosity, is there any seasonality to the rental market in PEI? It seems like you might have a stronger market in the summer, as tourists and tourist industry workers come to province. Is that the case? If not, how do the people working in that sector support themselves in the off-season?

I`m genuinely curious, as the world map in my basement with pins on it for every place I`ve been doesn`t include any in Atlantic Canada.

Michael

PS. How is the landlord-tenant law there? Always more due-diligence questions to ask yourself!

Hi Michael, thanks for your post. I`m about 20 minutes away from the property and there is currently a caretaker, but I do have a contact that does property management as well as I`m not sure what caretaker includes just yet. Summerside has always been aggressive in their advertising and as a result have strong roots in technology, manufacturing and tourism. I would put in the stagnant or low end of growing.

We have hundreds of km`s of beach front so there is a large industry in seasonal rentals that are booked solid from mid June to September 1. Tourism is big here with many world class golf courses, beaches, relaxed lifestyle and a huge Japanese market, mostly because of the Anne of Green Gables story! Technology is becoming big here as our local gov`t spent money years ago to put in the backbone required and as such we have many call centers, game designers etc coming here for low labor costs. And there are the traditional farming, fishing staples.
Anyway, if you get a chance I would suggest July/August....maybe by then I`ll have another place I can rent you

I purchased Real Estate Investing in Canada last night and I`m halfway through it, just running the properties I mentioned earlier through the analyzers and it is such a great resource. Is there another book you would recommend to compliment this one? I`ll hold off on anymore uninformed questions for now and come back once I`ve read it a few times!! Thanks so much for your advice to date.