First Timer...too much too quick?

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First Timer...too much too quick?

Dustin Corbett
New to Real Estate · Member since 2021 · 21 posts · 6 votes

Good morning BF. 

Been looking to get in the game for a little while now and ran across a potential investment by pure luck.

Was originally looking at single family residential to start out with rentals.

Commercial deal came in to our laps:

$310,000 purchase price
4 retail store fronts(3 rented to a cafe, 1 to a boutique)
2 apartments rented out upstairs
1 vacant apartment upstairs(biggest of the 3 residentials). Family lived in for years and moved away.

$40k rental income next year
Slighty over $45k 2023 with rent increases in place(were cut back for covid purposes)

NOI is $28k before mortgage

Numbers all seem legit and a good investment.

My question to the seasoned vets is: Would I be going too quick too fast with this many units to manage? The way I see it, it would take roughly 4 single family homes in my area to get back the same return in the same time frame. Cash flow would be slightly more with 4 single families, but we're not looking to get rich quick here and the cash flow on the commercial building would suffice, plus appreciation, paying off debt, and doing small rehab to the vacant property along with renting it out would increase value with additional rent.

I run a business with 40 employees and understand the business side of things pretty well. But I don't know if I should leap into this many tenants without "landlord" experience at all.


I appreciate any feedback you can give!!

Dustin

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Ariel K.
TX · Member since 2018 · 154 posts · 92 votes
4y

@Dustin Corbett expenses seem a bit off - 30% expense ratio is low but it could be due to economies of scale. It’s just surprising that between taxes, insurance, lawn care, utilities, etc, it’s only $12k.

I don’t think you are going to fast. My first 4 properties were 4plexes and I bought the first 3 within 6 months. Good luck.

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  • Rodney Lorenzo
    Member since 2021 · 119 posts · 45 votes
    4y

    Hi Dustin,

    I'm hoping to invest commercially as well, but by what I understand, commercial units can take longer to turn over. If the cafe and boutique have been there for a long time and have an established clientele, you could get away with it. The plus for you is that you have a vacant apt that you could fix up and charge market rate. 

    0Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Rodney Lorenzo yes that is my intention exactly. Not necessarily looking for a quick exit, but you are probably correct as i've heard the same with timing to sell. That being said, if the cash flow is good enough with current rents that are all stairstepped to move up over the next 2-3 years, then exiting, i could absorb a longer time frame barring anything terrible happening financially to us. 

    Good luck to you sir. Commercial just seems to make much more sense to me with returns. Although with lesser of a budget and capital to work with, this wouldnt be an option. 

    Where are you from??

    We are in Upstate New York

    0Reply
  • Rodney Lorenzo
    Member since 2021 · 119 posts · 45 votes
    4y

    Hi Dustin,

    I'm in Westchester County and plan to invest in CT. Because this market is rough for buyers right now, I have to have my options open to both residential 5+ and mixed use. The location of the property (high trafficked location) and the type of businesses, is something to consider. If you had a laundromat, hardware or convenience store, I'd say jump on it. The leases tend to be longer too.

    I'm jealous that this deal literally fell into your lap. Take it and run with it. Good luck!!

    2Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Rodney Lorenzo small world. I lived in Ardsley for 6 years and White Plains in the Avalon Communities when they first went up. Also went to Pace University in Pleasantville for 5 years LOL...not supposed to be that long. Played baseball there.

    My wife actually rented with a girlfriend of hers in a multi-family in Greenwich just off the highway down the road from Bar Taco, if you're familiar with that part. Not far from Westchester. 

    As far as the deal, I am hoping it works out. I have meeting with commercial mortgages officer on Tuesday as my mortgage guy cannot do over 4 units in one. 

    I'm thinking it should go well, and offer will be in place.

    Appreciate you Rodney. Let's stay in touch. Bounce ideas off each other.

    1Reply
  • Jon W.
    Investor · Matamoras, PA · Member since 2015 · 111 posts · 32 votes
    4y

    Sounds like a good deal for 310k. I would probably look into buying. Sounds like rent can be increased over a period of time.

    ------

    4 single-family homes are a good option as well. Follow the kris krohn strategy with the lease options buying 150-250k homes in good areas. 

    1Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Jon W. I don't disagree at all with the single families at all. I'm sure I will have some in the future. Fortunately in my area single families that would produce cash flow with our rental rates are only $120k+/-

    i will have to take a look at Kris Krohn!!


    Thank you for the info

    1Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y
    Originally posted by @Jon W.:

    Sounds like a good deal for 310k. I would probably look into buying. Sounds like rent can be increased over a period of time.

    ------

    4 single-family homes are a good option as well. Follow the kris krohn strategy with the lease options buying 150-250k homes in good areas. 

     Exit on the 4 single families would probably be easier!

    1Reply
  • Jon W.
    Investor · Matamoras, PA · Member since 2015 · 111 posts · 32 votes
    4y
    Originally posted by @Dustin Corbett:

    @Jon W. I don't disagree at all with the single families at all. I'm sure I will have some in the future. Fortunately in my area single families that would produce cash flow with our rental rates are only $120k+/-

    i will have to take a look at Kris Krohn!!


    Thank you for the info

    Not a problem. Sounds like you have a good spread for appreciating in your area.

    0Reply
  • Ariel K.
    TX · Member since 2018 · 154 posts · 92 votes
    4y

    @Dustin Corbett expenses seem a bit off - 30% expense ratio is low but it could be due to economies of scale. It’s just surprising that between taxes, insurance, lawn care, utilities, etc, it’s only $12k.

    I don’t think you are going to fast. My first 4 properties were 4plexes and I bought the first 3 within 6 months. Good luck.

    2Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Ariel K. you're absolutely right. The NOI number I put was the number including a deal I have struck with the seller that would include $1000/mo for 12 months for the vacant property upstairs paid by the seller. I didn't explain that. So adding the 12k to the total rental income would come to $52k...12,600 tax..$3600 insurance...$3300 water and sewer...$3-400 for snow removal....$1200 repairs/maintenance....other utilities paid by tenants...all seperate meters. So taking out the $21k and 5% vacancy leaves me with $23,500 roughly expense wise. Leaving the $28k+/- NOI.

    It's somewhat convoluted because of step tiered rents over the next 12-24 months and the caveat of the $12k coming from seller over first year. My explanation wasn't too clear.

    Good to hear that you were successful with jumping into relatively bigger properties up front. I appreciate your input!!  

    0Reply
  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    4y

    @Dustin Corbett it sounds like an excellent investment and a great way to learn. You're background will allow to skip the 1-4 tenants phase. It is priced right so you can handle the vacancies, and once fully rented the NOI will be even better.

    1Reply
  • Linda S.
    Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    4y

    @Dustin Corbett,

    I've never done commercial, very heavy into low income rentals and multi-family, but let me say as a very seasoned landlord.   We started with  our first duplex gut job for $15K, 5 -years ago  (now appraised for $125K) , no one wanted to touch it.. but honestly,  once you survive a horrible scenario, everything else seems kind of easy-- you know the saying "when it rains, it pours"---- I have  updated version for landlords specifically... "when it rains, it hurricanes"   as in it won't just be a cute single, expected problem, it will be about 4 big problems, 3 medium ones and a surprise vacancy of 2 units all within a month, something crazy like that and it's going to test your wallet!   

    As long as you have access to a lot of capital to fund renovations, vacancy, and unexpected items, not to mention can handle the stress,  and trust me--t will be a lot, and it's a lot of stuff no one  (except BP!) will be really able to understand and relate... It's going to be a sink or swim, I hope you swim!  I say go for it!  After this, everything else will seem easy!

    2Reply
  • Michael Plante
    Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
    4y
    Originally posted by @Dustin Corbett:

    Good morning BF. 

    Been looking to get in the game for a little while now and ran across a potential investment by pure luck.

    Was originally looking at single family residential to start out with rentals.

    Commercial deal came in to our laps:

    $310,000 purchase price
    4 retail store fronts(3 rented to a cafe, 1 to a boutique)
    2 apartments rented out upstairs
    1 vacant apartment upstairs(biggest of the 3 residentials). Family lived in for years and moved away.

    $40k rental income next year
    Slighty over $45k 2023 with rent increases in place(were cut back for covid purposes)

    NOI is $28k before mortgage

    Numbers all seem legit and a good investment.

    My question to the seasoned vets is: Would I be going too quick too fast with this many units to manage? The way I see it, it would take roughly 4 single family homes in my area to get back the same return in the same time frame. Cash flow would be slightly more with 4 single families, but we're not looking to get rich quick here and the cash flow on the commercial building would suffice, plus appreciation, paying off debt, and doing small rehab to the vacant property along with renting it out would increase value with additional rent.

    I run a business with 40 employees and understand the business side of things pretty well. But I don't know if I should leap into this many tenants without "landlord" experience at all.


    I appreciate any feedback you can give!!

    Dustin

     2 Things

    1. How long has the cafe been in business?  I would talk to the owner see how things are.  If you lose them it could be some time before filling in 3 spots 


    2.  Could you move your business into any of the units?

    2Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Linda S. thanks for the honesty!! Let it roll I guess. 

    0Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Ken Naim Thank you for the push. I am confident, and at the same time trying to be realistic. Quite honestly, I always try to talk myself out of any kind of deal I'm considering. And when I can't, I do it. That's where I'm at right now with this investment.

    Appreciate the support!!

    0Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Michael Plante

    1. 2 years. moved out of a smaller unit on same rd. because they grew out of the small proximity as a bakery only...moved onto full cafe.

    2. unfortunately no. I run an automotive dealership that cannot fit into anything other than then 40,000 square foot building we are in now. 

    1Reply
  • Silvio Cangianni
    Real Estate Agent · Mamaroneck, NY · Member since 2020 · 2 posts · 2 votes
    4y

    Dustin we live in the same area! I live in Mamaroneck. Lower Westchester is very difficult to find deals. Think you found a good one. (Must be in another area, lol).
    As an agent, and a property manager, (both specializing in commercial property), I would recommend the following only because seems like an off market property-

    1- Viewing the leases making sure current owner can sell as there is no ROFR.

    2- Any security deposits.

    3- Confirming tenants are paying with either an estoppel certificate or simple as viewing deposits. 

    4- I’m sure the title search will come up with CO on legal commercial with 4 Resi. But should confirm for yourself with town. 

    Sounds like a good deal with potential. 
    Reach out to me if you want to talk. 

    1Reply
  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    4y

    @Dustin Corbett When I look at a deal i aim to be 75-80% confident. There are always unknowns and crazy scenarios that will destroy your confidence which just paralyzes you. At the same time don't rely on the best case scenario. You sound realistic and this deal sounds good, just verify there are gotchas, leaky cast iron plumbing, cracked foundation, tenants to be evicted. Still not deal breakers, just factor into the cost.

    1Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Michael Plante

    1. 2 years. moved out of a smaller unit on same rd. because they grew out of the small proximity as a bakery only...moved onto full cafe.

    2. unfortunately no. I run an automotive dealership that cannot fit into anything other than then 40,000 square foot building we are in now. 

    0Reply
  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    4y

    @Dustin Corbett When I look at a deal i aim to be 75-80% confident. There are always unknowns and crazy scenarios that will destroy your confidence which just paralyzes you. At the same time don't rely on the best case scenario. You sound realistic and this deal sounds good, just verify there are gotchas, leaky cast iron plumbing, cracked foundation, tenants to be evicted. Still not deal breakers, just factor into the cost.

    0Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Ken Naim i totally agree. things can and will happen for sure. I will keep your advise close to the vest. Definitely don't want to talk myself out of a good deal, that's for damn certain.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    4y
    Originally posted by @Dustin Corbett:

    Good morning BF. 

    Been looking to get in the game for a little while now and ran across a potential investment by pure luck.

    Was originally looking at single family residential to start out with rentals.

    Commercial deal came in to our laps:

    $310,000 purchase price
    4 retail store fronts(3 rented to a cafe, 1 to a boutique)
    2 apartments rented out upstairs
    1 vacant apartment upstairs(biggest of the 3 residentials). Family lived in for years and moved away.

    $40k rental income next year
    Slighty over $45k 2023 with rent increases in place(were cut back for covid purposes)

    NOI is $28k before mortgage

    Numbers all seem legit and a good investment.

    My question to the seasoned vets is: Would I be going too quick too fast with this many units to manage? The way I see it, it would take roughly 4 single family homes in my area to get back the same return in the same time frame. Cash flow would be slightly more with 4 single families, but we're not looking to get rich quick here and the cash flow on the commercial building would suffice, plus appreciation, paying off debt, and doing small rehab to the vacant property along with renting it out would increase value with additional rent.

    I run a business with 40 employees and understand the business side of things pretty well. But I don't know if I should leap into this many tenants without "landlord" experience at all.


    I appreciate any feedback you can give!!

    Dustin

     With a business and 40 employees, you're way farther ahead than I was when my 2nd deal (after 1 house) was a 10 unit mixed-use 18 years ago. 

    I should have had a pro help me with the retail lease ppwk. It was new territory and I was broke,  but glad I jumped in.   I say go for it!

    1Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y
    Originally posted by @Steve Vaughan:
    Originally posted by @Dustin Corbett:

    Good morning BF. 

    Been looking to get in the game for a little while now and ran across a potential investment by pure luck.

    Was originally looking at single family residential to start out with rentals.

    Commercial deal came in to our laps:

    $310,000 purchase price
    4 retail store fronts(3 rented to a cafe, 1 to a boutique)
    2 apartments rented out upstairs
    1 vacant apartment upstairs(biggest of the 3 residentials). Family lived in for years and moved away.

    $40k rental income next year
    Slighty over $45k 2023 with rent increases in place(were cut back for covid purposes)

    NOI is $28k before mortgage

    Numbers all seem legit and a good investment.

    My question to the seasoned vets is: Would I be going too quick too fast with this many units to manage? The way I see it, it would take roughly 4 single family homes in my area to get back the same return in the same time frame. Cash flow would be slightly more with 4 single families, but we're not looking to get rich quick here and the cash flow on the commercial building would suffice, plus appreciation, paying off debt, and doing small rehab to the vacant property along with renting it out would increase value with additional rent.

    I run a business with 40 employees and understand the business side of things pretty well. But I don't know if I should leap into this many tenants without "landlord" experience at all.


    I appreciate any feedback you can give!!

    Dustin

     With a business and 40 employees, you're way farther ahead than I was when my 2nd deal (after 1 house) was a 10 unit mixed-use 18 years ago. 

    I should have had a pro help me with the retail lease ppwk. It was new territory and I was broke,  but glad I jumped in.   I say go for it!

     Steve without question I am having attorney set me up with these. Air tight and secure lease agreements. All part of the learning curve I imagine....thanks for the encouragement!!!

    1Reply
  • Spencer Gartz
    Member since 2018 · 13 posts · 10 votes
    4y

    @Dustin Corbett

    I think the only person who can decide how much is too much is you.

    It does sound like a lot, and can be. If you can structure it like a legitimate business, you can spend a small amount of time running it. The most time I spend on apartments is swinging a hammer. Otherwise, there is a small amount of day to day commitment and obligation.

    My concern for you would be the mix of commercial and residential. We have 7 residential apartments, and one commercial. The commercial was an acquisition this year. I spent a lot of time and energy learning residential laws, common practices, apartment rental values, and anything else I can. Now that I’m dealing with the commercial, I have to double the amount of research and learning that has to be done, and a lot of the time I have a hard time finding commercial laws, etc.

    that being said, if you’re a successful business owner with 40 employees, hopefully you can afford carrying costs with vacancies if you need to slow down, or afford attorney fees to have a good real estate attorney on retainer to save you some research.

    It’s only scary until you do it!

    Good luck

    1Reply
  • Dustin Corbett
    OP
    New to Real Estate · Member since 2021 · 21 posts · 6 votes
    4y

    @Spencer Gartz I do agree with the differences between commercial and residential and yes I will lean pretty heavily on my attorney to make sure I'm safe with the law. 

    I have a few meetings with lender and attorney this week, and if all goes to plan, a purchase agreement will be sent to seller. Jumping in seems to be the best way, so that's what we will do!

    I will keep you updated....and everyone else. I appreciate all the feedback!!!

    0Reply
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