Need Some Advise Regarding My 2 Investments

Hi guys, I'd greatly appreciate some advise regarding the 2 investments that I have on hand right now. I'm still a rookie, not much of a experience and I'm still learning along the way. I've read and study alot about investing on my own. I learnt how to live below my salary, put away about 50% of what I make every month on my day job and invested the money I saved.

Here goes, I rented 2 shops in a shopping mall from the landlord and paid the landlord 2 months deposit, settled the paperworks and took the 2 contracts. Due to it's prime location, the 2 shops were rented out the very next day. Till now, both shops have been rented out for 4 months on a 1 year contract.

Amount Invested In 2 Shops: USD4,300
Monthly Revenues From 2 Shops: USD1,030
Monthly Operating Cost For 2 Shops: USD750
Monthly Cashflow From 2 Shops: USD280
R.O.I: 78%

Question: According to my calculations, which I could be wrong, if 2 shops are vacant for a month, it'd take about 4 months of my monthly cashflow (USD280 x 4 months) to pay the landlord (USD1,030). Is this the way how this game is being played?

In my senerio, I treated the landlord as my bank. I meant if I were to take a mortgage from the bank to buy a house for investment, I still got to make payment to the bank every month. I understand that end of the day, I do not own the properties except the cashflow that it generates out from my initial investment USD4,300.

Edited: 11/20/2010 at 01:47PM by Kenneth Lim

Andy J.

Real Estate Investor · Colorado Springs, Colorado

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Nov 20 '10, 04:15 PM

Your question is not clear, what "game"? Are you asking for someone to check your math???

Kenneth Lim

Real Estate Investor · San Jose, California

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Nov 20 '10, 08:28 PM

Originally posted by Andy Jones

Your question is not clear, what "game"? Are you asking for someone to check your math???

Sorry for the confusion. I meant is this consider a good investment? Any advise? Thanks.

Edited: 11/20/2010 at 08:36PM by Kenneth Lim

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Nov 20 '10, 11:07 PM

I don't understand your numbers. Are you saying you're paying the landlord $750 a month in rent and then subleasing these shops for $1030 a month? And that you paid $4,300 up front?

What was the $4,300? Prepaid rent? Deposits? Something else? You mention you paid two months rent, but that would appear to be $750 a month or $1400. What's the other $2800?

Are there any other costs associated with these shops? Any maintenance, taxes, insurance, etc? Clearly you have the possibility of vacancy, which you're concerned about. If the current tenants move out, will you be able to replace them quickly? In my area, there are LOTS of empty storefronts in the local malls and strip centers, even in the busy ones. I've watched one building on the outlot of a new, busy WalMart set empty for years now.

The 78% ROI (cash on cash return, most RE investors would call that), assumes you're taking in $280 a month on your $4300 investment. If that's correct, then this is a nice investment. If some of that $4300 is a refundable security deposit or pre-paid rent, the investment will be even nicer when you wind it down.

Jon Holdman, Flying Phoenix LLC

Kenneth Lim

Real Estate Investor · San Jose, California

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Nov 21 '10, 01:15 AM

Originally posted by Jon Holdman

I don't understand your numbers. Are you saying you're paying the landlord $750 a month in rent and then subleasing these shops for $1030 a month? And that you paid $4,300 up front?

What was the $4,300? Prepaid rent? Deposits? Something else? You mention you paid two months rent, but that would appear to be $750 a month or $1400. What's the other $2800?

Are there any other costs associated with these shops? Any maintenance, taxes, insurance, etc? Clearly you have the possibility of vacancy, which you're concerned about. If the current tenants move out, will you be able to replace them quickly? In my area, there are LOTS of empty storefronts in the local malls and strip centers, even in the busy ones. I've watched one building on the outlot of a new, busy WalMart set empty for years now.

The 78% ROI (cash on cash return, most RE investors would call that), assumes you're taking in $280 a month on your $4300 investment. If that's correct, then this is a nice investment. If some of that $4300 is a refundable security deposit or pre-paid rent, the investment will be even nicer when you wind it down.

Absolutely sorry about the confusion as I missed out some of the info. Yes I rented the 2 shops from the landlord and then rented the 2 shops out again.

I invested $4,300 in total on some renovation works, security deposit and all other miscellaneous stuff including paper works.

Every month I collect from my tenants $515 x 2 shops ($1,030)
Every month I pay landlord $375 x 2 shops ($750)
Every month my cashflow is $140 x 2 shops ($280)
Cash On Cash Return is about 78% per year

Part of the $4,300 I invested in consist of the deposit I paid to the landlord (Refundable Deposit) because I rented the 2 shops.

The $375 x 2 shops = $750 I paid to the landlord every month consists of all my operating expenses like maintenence, etc....

My net cashflow is $140 x 2 shops = $280

Please pardon me for causing any confusion. This is my very first investment..... I'm indeed a rookie and hopefully I don't make any stupid mistakes here that cause me my hard earned money....

Edited: 11/21/2010 at 01:30AM by Kenneth Lim

Kenneth Lim

Real Estate Investor · San Jose, California

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Nov 21 '10, 01:40 AM

Originally posted by Jon Holdman

Clearly you have the possibility of vacancy, which you're concerned about. If the current tenants move out, will you be able to replace them quickly?

I've collected the deposit from my 2 tenants and their contracts will end in about 8 months time. I told them they're required to tell me 2 months in advance if they're moving out or else their security deposit will be forfeited.

Jeffrey K.

Real Estate Investor · Milwaukee, Wisconsin

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Nov 21 '10, 02:39 AM

Sounds like the landlord is not good at leasing or you know how to add value. You should try to buy the whole mall. Commercial loans can often be assumed.