I have been doing my homework on getting into my first investment property, the residential market near me hasn't gotten me too excited. I recently came across a new construction storage facility in Western Wisconsin that sells each unit individually. There will be a total of 36 units when complete, only 12 are done now. Each unit ranges from 120-125k per and four of them are currently renting out for $1050-1100 per month. I am wondering if this is something that is a good starting point to learn the ropes with, to build relationships, and eventually get into bigger investments. Any insight is appreciated. Thanks!
Here's the money break down...
Purchase price: $125,000 (5 year fixed rate balloon/20 year amortization, current rate 4.6%)
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
4y
4 of them are currently rented for that? or are listed for rent for that much? How long can you go without the $1100/mo coming in? Personally I think those numbers are really skinny, if you figure 5% vacancy (low estimate, I use 10%) and 10% for repairs, maintenance and capX you are well under water, much will depend how the tenant will use the unit, and what repairs/maintenance the tenant will be responsible for.
Also what is your cashflow in 5 years when you renew your note at 10% or 15%? Last high inflation period the fed rate hit just under 21% so consider a safety net.
Thanks for bringing these items up Scott! Definitely gave me some things to think about.
- 4 of them are currently rented for that? or are listed for rent for that much?
I believe 4 of them are currently rented at that, I am trying to get in contact with the person who is renting the 4 out. I just saw another on marketplace advertising $1050/mo. https://www.facebook.com/marke...
- How long can you go without the $1100/mo coming in?
Not long. The down payment would deplete majority of my savings. I would be leaving myself about 3 months reserve of my current expenses.
-Much will depend how the tenant will use the unit, and what repairs/maintenance the tenant will be responsible for.
The unit is 24'x45' garage space with a over head heater and ceiling fans, garage door opener, metal walls and ceiling, plumbing roughed in. Not much to them. The exterior of the building is taken care of by the HOA, so I am just purchasing inside storage space. https://www.grrflexspace.com/
- Also what is your cashflow in 5 years when you renew your note at 10% or 15%?
After doing the math on this it looks like I will be upside down if I hit 10% even with increasing the rent 3-5% yearly.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
4y
regarding interest rates, I can almost grantee in 5 years the rate will be 6-7% on this type of note, generally on the commercial side, small local banks lend at prime + or -1 to 4%, if the lender chooses not to renew and you had to take the loan elsewhere what would that look like? I have seen this happen when the market tanked after 2007, where banks just didnt want some types of loans anymore, so they just did not renew. so people had to scramble and find a new lender with little equity, because values had fallen, I watched a lot of investors loose everything, I was listing for banks then, as well as flipping, I saw ugly situations, so when I started buying rentals I put extra caution in place, Currently I have 23 houses and very little debt, many say that is not smart, but we will see who is buying what when the bottom falls out again.
Best of luck, just be careful, the market is not just toppy, its frothy in my opinion.