Good deal or not?

10 Replies

Hello everyone,

I have been trying to analyze properties for the last while (mostly single family, small multi family) from the MLS and happened to come across this large multi family development property. I live in Nanaimo, British Columbia, Canada. I am not familiar with analyzing a property on this scale so I was hoping to get some feedback from others with more expertise in this field. Here is the information I was able to find, if there is additional info that I need to get to be able to analyze this please let me know and I will do my best to get it.

-Vacant land. (6.73 acres)

-Listing price: $2,988,000 (appraised at $3.77 M.)

-Planned 143 unit townhome condominium phased development. 8 different floor plans, 3 bed, 3.5 bath, approx. 1100 sq ft.

-Close to: all school levels, university, all amenities, golf course, highway, other new developments, central location off major arterial route through city.

Comparable townhouses close by:
-selling for $309,000-$339,900
-renting for $1600 (top end)

Cost per square foot to build:
-between $120 and $160 (not sure how accurate this is)

So if the average townhome is 1100sqft:

1100 x 143 units x $150 = $23,595,000

+ land cost $2,988,000 = $26,583,000.

If all units sold for $300,000 gross profit would be $42,900,000 giving a net profit of (obviously there are other expenses I am not including) about $16 Million. Even with a lot of other expenses is this not a huge profit? Or am I completely off in my calculations? I definitely do not have near the capital or experience to do a deal like this but the numbers interested me. Any input is appreciated, I am just trying to learn more about larger multi family investing. Thanks.

Ah, the one on Casper's Way?

I'm not a big-time multi-unit investor either, nor I have even built a place from the ground up before, but I'd imagine (assuming your building costs are correct) you're missing the following points:

- You're assuming that you'd sell 143 units at once. There'd be a lot of holding costs until they all sell

- You're also assuming that all goes according to plan. Surely there will be added costs during construction! In fact, I'd guarantee it.

- Realtor and legal fees! Here you're looking at about $14K for realtor commissions per unit. So that's 2 million right there.

- Capital gains tax? No idea, just throwing it out there

- Unless you have 26 million lying around, you'll be leveraging other people's money. You need to factor in the penalties for paying this off early as well as the interest you'd be paying until you pay it off.

Basically though, you're saying that you'd build each townhome for as low as $132,000 then sell it a few months later for $300,000, except you're multiplying it by 143 units. There are so many costs you're omitting here, otherwise everyone would be doing this left and right - easy 127.3% ROI!

Just an example - imagine the construction company you hired managed to mess up some piping in the all the units, and fixing it will cost $10,000 per unit. That's another 1.5 million right there... so you can see how quickly profit can go out the window. 

I think multi-unit properties are not all that different from single units, they're mostly just on a larger scale is all.

Yes that's the one! I figured my numbers were too good to be true. You're probably right, someone would have bought it by now if it were that good of a deal. Thanks for your input, I will factor those things in the next time I crunch the numbers.

May I ask why you're looking at those big pricetags? I don't know your budget, but why not focus on looking at the smaller properties here? They're a bit simpler to analyze and then you might even find one to buy!

I bought my first income property in July of 2015 and it has already appreciated 24% in value, so there are definitely opportunities in Nanaimo. Granted, I was fortunate to luck out with the massive boom we had recently, but even so... 

Plus, all I hear is with the new foreign buyer's tax in Vancouver that many of those Chinese buyers are looking at Victoria, so Nanaimo is definitely on their radar too.

I definitely don't have a budget for those types of properties, I was just interested to see how the profit scales with more units. Maybe someday I could do a big deal like that but for now I'm focusing on small single family properties. When you are looking for properties in Nanaimo do you just look on the MLS? I have been keeping my eye on the properties on there and haven't found any so far that would give returns that make it worthwhile. I went to the courthouse to see how the foreclosure auctions work but you have to buy them without seeing the property - seems risky. Also one more question, do you go to the Nanaimo real estate investors Meetup at all? I am thinking about going to the next one if I can.

Congrats on your first income property as well! I'm glad it is performing well for you.

For what I was looking for, yes, I just looked at MLS and PCS (I had access to PCS because I used a local realtor I found here on BiggerPockets). In fact, I still check the PCS and sometimes MLS almost daily, even though I'm in no position to buy another property anytime soon, simply because I absolutely adore this industry.

I guess it depends on what your definition of 'worthwhile' is, as well as your goals. I was looking for a buy-and-hold property, not a huge cashflowing one. You won't be able to find cashflowing properties here like you read about on most of BiggerPockets in the US. And most of the good cashflowing ones I found were in derelict housing, which I didn't want to take on.

Back when I was looking, I spent like a solid year reading every single article on BP, searching the market, and creating a somewhat sophisticated Excel analysis spreadsheet (I got it to the point where all you had to do was enter in the MLS number and it would extract all the data, analyze it, and spit out all the details.

It's analyzing everything from appreciation rates, cumulative appreciation gain, IRR, NPV, etc.

Here's a screenshot from the summary numbers of some of the properties I was looking at over a year ago. Keep in mind that I pad my expenses quite a bit to be safe (typically 5.5% vacancy, 6% maintenance, 5% contingency, and 12.81% property management fees. Those numbers include ALL other expenses too including 100% accurate property taxes, insurance, city utilites, inspection costs, lawyer, appraisal fees, etc.:

I haven't attended any Nanaimo real estate investors meetups - I was thinking of it when I was looking, but they are really pretty inactive, often only holding meetings once every 3 weeks. And I've had major health issues lately so I haven't had any income to buy another property anytime soon.

I can't wait until I do though - honestly, looking for an income property to buy was one of the most thrilling and interesting things I've ever done in my life.

Hi Jeff,

There is definitely a lot of work that would go into this type of project. Engineering environmental assessments, development cost charges, (don't forget landscaping!), additional legal, setting up the Strata, etc.. Might be quite a bit to bite off if you don't have established relationships in place.

Also, for a smaller market such as Nanaimo, 143 units represents a significant portion of the market. Of course in 2016 the inventory has been so low the product would be welcome! That being said we have noticed a bit of a shift in the market with the recently legislated changes to borrowing, etc...

Fortunately the realtor fees would be lower than expected however this might be offset by additional marketing costs depending on how how aggressively the project is advertised.

Although it is a Seller's market there are still some deals to be found. Further, recent zoning changes have opened up the opportunity to create 'small' developments that can have a fairly nice return (used to be spectacular last year)

@Tyler Cruz that is what I have found here as well, the only properties that cashflow are not in the nicest areas.  That is an impressive system you have built.  I also have started a spreadsheet but I have to input all the data myself and it isn't as extensive as yours.  It is fun to run numbers on it though, I get carried away all the time.  I'm sorry to hear about your health conditions, I hope you're recovered soon and can purchase that second property.  

@Tom Stromar thanks for your input, I will have to do more reading into those topics.  Do you think this sellers market will turn around soon?  Is it just me or does the real estate market seem to slow down during the winter months and boom during the spring and summer around here?

It's hard to pin down exactly when the seller's market might shift. We have seen a bit of the 'froth' taken off with the changes to mortgage qualifying recently implemented by the federal government. But while there is a shortage of supply and sustained or excess demand, I would expect market conditions to remain in the seller's favour.

As for the annual market cycle, yes, you're absolutely correct, while you can see the extra activity of 2016 in the lower chart, the double camel hump is clear for both years. Typically activity peaks in May and October with August and December being the slowest months.

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