Author Topic: Off Market Mixed Use Property Evaluation  (Read 731 times)

AK

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Off Market Mixed Use Property Evaluation
« on: January 29, 2017, 07:38:11 PM »
My Fellow Mustachians,

I need your input on the following opportunity. A friend of a friend owns a mixed use property in the inner city of a mid-sized city near me. It has 6 units in it. 2 are retail with long-term leases that last for another 2 years and the other 4 units are residential. The retail gross rents are $1,400 and the residential gross rents are $2,200 for a monthly total of $3,600 or $43,200 per year fully rented.

Annual Projected Income

Rental Income                   $43,200
Vacancy Rate                             4%
Vacancy Lost                       $1,728
Gross Income                   $41,472

Annual Projected Expenses

Property Taxes:                $3,000
Insurance                         $3,400
Maintenance &
Repairs (5% Gross)         $2,074
Property Manager (10%) $4,147
Tenant Placement Fee         $650
Annual Tuneup                   $230
Sewer                                 $480
Lease Renewal Fee              $195
Water                                  $480
Lawn Care                           $0.00   No Lawn.

Total                               $14,656

Expenses as % of Gross Income ~ 38%

Net Operating Income    $26,816

Seller Financing Options

The seller owns the property outright and is offering seller financing with the following terms if I purchase the property alone.

   Asking Price:   $150,000
   Down Payment: $25,000
   6% Fixed Mortgage for 6 Years with Monthly Payment of $2,063 or $24,760 annually.

   Result: ~ $2,000 cashflow annually for 6 years and about $20,000 in equity per year for 6 years.

If I partner on the deal with my friend who is very good friends with the owner, the following terms are available:

  Asking Price:    $130,000   This is a $20,000 discount
  Down Payment: $15,000
  6% Fixed Mortgage for 6 Years with Monthly Payment of $1,907 or $22,881 annually.

  Result: ~ $3,500 cashflow annually for 6 years and about $20,000 in equity per year for 6 years.

Considerations

- My friend that I'd have to partner with is currently unemployed and doesn't have many financial reserves. I can easily finance either down payment and have plenty in reserves and income from my job.

- The property is in a bad area that has a high crime rate. The property does have a security system which offsets some of that risk for me.

- This would be my first real estate investment transaction. I've spent many months learning about real estate and about 1.5 years looking for a property that has the numbers that meet my financial qualifications. However, most of my time learning has been for residential properties only. Given this property has some retail units in it, I'm unfamiliar with what other rules, laws, and regulations that this brings.

- I drove by the property with my friend and the condition looks good. I haven't inspected the property yet.

Questions

1) My friend is introducing me to the owner in a few days to sit down and talk about the property. What questions should I be asking? Some obvious ones are:
   May I see the property's income statement (income and expenses) for the past 2 years?
   May I see the leases for the tenants?
   Why are you selling what seems like a wonderful, cashflowing property?

2) Are the seller financing terms any good? Personally, I think the interest rate is too high for such a short term length.

3) What are my financing options through a traditional lender? I suspect that I'd have to do a commercial loan.

4) The numbers seem unrealistically good but the gross rents are what the owner provided. The owner also provided the taxes and insurance. What do you think of this deal? What else should I be considering?

AK

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Re: Off Market Mixed Use Property Evaluation
« Reply #1 on: February 04, 2017, 10:54:08 AM »
Thoughts?

Another Reader

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Re: Off Market Mixed Use Property Evaluation
« Reply #2 on: February 04, 2017, 11:06:48 AM »
Two prices, dependent on bringing this "friend" into the deal?  I would not touch that.  And slumlord is not a good way to begin an investing career.