Awesome looking 5PLEX deal in NE Quebec, too good to be true?

Question

Hey everyone! Sorry in advance if this is not the right place to ask for help and external opinions... But I've got a deal that I'm this close to buying, but I'm still worried that it may be too good to be true. Here's some info, I would greatly appreciate all the opinions you experienced folks can give me! One more thing... Sorry for the photos, these are the only ones the Realtor's got posted...

First off, I would be investing long-distance, I'm from Montreal, and the property is located in Baie Trinite, in Manicouagan. It's a relatively small coastal village with a population just over 400. It would be near impossible for me to visit the property on my own.

Secondly, the purchase price is $52,500 CAD. There are 5 units, Three 4 1/2 units and two 3 1/2 units. Two of the 4 1/2's are currently rented for $525 a month, the other 4 1/2 is rented for $460 a month, one 3 1/2 is rented at $425 a month, and the last 3 1/2 is, according to the owner, only rented for 8 weeks totaling $1,200 of yearly income from it.

Of course, I did my own analysis and I just wanted some opinions here, the net operating income I've got here (with a conservative $23,000 of gross yearly income, which is theoretically supposed to be over $24,000) is about $5,410.

After a mortgage with a 20% down payment (10,500) and an estimated $2,000 of closing costs and legal fees (resulting in a $12,500 total down expenditure), net income would total just over $3,000 a year. Resulting in a COC ROI of about 24.5%.

Property management is taken care of, the realtor's helping me out with that.

So is there anything I'm missing here? I've never purchased real estate before but I'm taking serious steps and I need to make a concrete decision soon... Any constructive feedback is appreciated!

Thank you,

Peter

Chris Ferreira · Answer

Hi Peter,

I agree with everything Guillaume said and in addition to all those potential issues is your liquidity of your investment. If you ever wanted to sell this property, it would be very hard. Your money might be tied up for a very long time. Also, did you already check with the bank to see if they are willing to finance this for you? Considering the location and the high vacancy of the area, I would be surprised a traditional bank would want to touch this let alone a down deposit of only 20%.

Guillaume D. · Answer

Hey Peter!

When looking at properties outside of major cities, the numbers always look attractive, but you have to be careful. First off, this property likely won't increase in value over time due to its location, so you have to base your decision solely on cashflow. From the pictures, the building looks quite old. Did you consider cost of upcoming repairs that can get quite expensive such as roofing, doors and windows, foundation/structural work (if needed), etc? Plus, vacancy rates can get very high in small markets so make sure you verify the bank deposits from the seller to make sure he really is collecting rent as he says he is on a monthly basis. Another problem you get with very small long distance markets like these is having to find a property manager. Typically, property managers like to do business in major cities rather than very small markets since there's usually not enough work for them to make a living. Do you have a backup plan if the property manager you are referring to decides to bail? Are you going to be able to manage it yourself? Collect rents if some tenants insist on paying cash? Doing visits when you have to rent an apartment? I know the broker probably tells you it's going to be easy and all that, but don't forget his job is to sell the building ;)! Hope this helps! Keep us posted. My 2 cents!

Account Closed · Answer

Good move, I would never invest in something of this sort. There is zero liquidity in an area of that sort. The only people living there are either too old or too socially restricted to leave. In all honesty the ROI is good but all that work for 3K? not worth it.

Peter Michael · Answer

After doing some more research, I've opted against it, the population has been dwindling, and it seems like it'll stagnate or lose value. Thanks for the feedback!

Peter Michael · Answer

Thanks for all the info Guillaume and Chris, I'm meeting with a mortgage representative at my RBC branch. I'm getting the last few expenses sorted out. As for the property manager, there are a few established companies in the area that can manage it should my current plan fail. As for exit strategies, if it fails as a rental, selling will definitely be hard. Ideally I could run it as a vacation rental, should that not work I believe I'll have to sell it.

I'm looking into it some more, I'll have an inspection going as well if I decide that it checks out. In addition, something I omitted to state is that the total municipal valuation is just over $70,000. Thanks again for all the info, I definitely have to be skeptical. I'll keep you posted.

Awesome looking 5PLEX deal in NE Quebec, too good to be true?

Awesome looking 5PLEX deal in NE Quebec, too good to be true?

Most Popular Reply

5 Replies