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sell or Hold

Discussion in 'Ask A REIN Coach (Certified REIA)' started by DustinT, Sep 22, 2017.

  1. DustinT
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    DustinT New Member Registered

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    Hello all,

    This is an interesting exercise since it is not my property at play yet I am looking to get into real estate so I'm enjoying this opportunity to look into things.

    An organization that I am a part of has 10 properties in a small northern alberta town. They are all older 4 mobile homes and 6 bungalows most if not all with unfinished basements. The rents range from 200 (haven't looked into that yet) to 1000$ a month and total 7570$ a month. After manager fees and all other expenses the cashflow or whatever this number would be called varies a lot month to month. In 2016 one month was 1300$ and one was 6200$ and all others in between. The last two years one total income was a little over 50k and the other was 27k.

    A few questions. With older assets like these is the variance experienced typical? Looking at the property management invoices the additional expenses some months seem to be legit. Roofing, hardware, etc.

    Also, what is the likely future for these assets: appreciation? Or the need to rebuild completely and then reevaluate?

    I am looking at the possibility of selling and reinvesting but not sure if it's a great time to do that. Just trying to find the optimal play, or get a few options or ideas.

    Also, even more helpful would be what kinds of things should I be calculating to make these type of decisions. What key factors and how to arrive at them, etc. Thanks.
     
    Last edited: Sep 22, 2017
  2. Matt Crowley
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    Matt Crowley Active Member Registered

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    Hi Dustin,

    Build out the NOI pro forma for each property. "cash flow" as it is commonly referred to has pretty much no meaning just reading from financials as cyclicals vary considerably year-to-year.
    Build out the cyclical budget for each property.

    Cash flow forecast=
    NOI
    - cap ex
    - debt service
    = cash flow before tax (before disposition proceeds)

    In terminal year
    + disposition gross proceeds (in year of sale)
    - Realtor & closing costs
    - interest penalty
    = Net proceeds from sale

    Then run XIRR formula on Excel and Equity multiples and see where the investment wrings out at.

    For current value, just get appraisals and deduct debt and selling costs.
    Compare that current value to expected proceeds from different hold periods.
    Make investment decision.

    If you need help PM me, I'll help you build it.
     
  3. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    Mobile homes have little value assuming you do not own the land.

    Bungalows have value of course. Appreciation potential is small in N-Alberta. Where in N-Alberta as some markets like GP have upside but others will be weak.
     
  4. Dave Martin
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    Dave Martin New Member Registered

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    i'd be looking closely at the properties themselves, then having a talk with the property management.

    if the monthly expenses can be explained by the age and condition of the structures alone, the revenue should stabilize once everything is brought up to snuff.
    but if factors like the location, economic conditions of the area, or poor management are attracting tenants that destroy the buildings and/or don't pay rent, or don't attract tenants at all, the revenue will be constantly fluctuating.
     

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