New REI/BP member looking for help on 4-unit investment opp.
Hi all,
I've been using BP for just under a month now, and only crunching out Real Estate Investment opportunities for about three months. Under the guidance of my friend (business partner) who has been an active investor for a few years, I have taken a particular interest in getting into something close by so that I can gain a better understanding and respect for being a landlord. I've scoped out a number of deals in the last two months, and nothing has quite presented itself as seriously as the one we are looking at now. I am really hoping that some of the great feedback I often read on here can be as helpful for me if I share the numbers on the property. So here we go; and thanks in advance!
Property is located in Windsor, NS. It is bank owned and the price just dropped from $210- $198,500 It is a (very) large 4-unit building that is around 100 years old. The foundation is made up of mostly brick, but there are some sections of rock and cinder blocks in some places (more on this later). There is a number of upgrades/renos that need to take place, but we were able to come up with a rough estimate on operating income and expenses. Here are the numbers:
Purchase: 180,000
NOI: $19,895.00
Monthly Inc: $2,750.00
Monthly Exp: $1878.74
Cash flow: $871.26
Although the numbers look great, there are lots of things to consider with potential upgrades that could impact the numbers either way. We are also hoping for a decent ReFi amount (increase in value) so that some equity can be used elsewhere in 3-5 years, partner can be paid back for reno costs/ better return on money. All units are on their own power, but use oil for heat. Due to the age of the building it is proving to be quite difficult (expensive) to move the units over to electric heat (only 60amp service). Also, two units need a decent amount of work to get up to operating standards. Total construction estimates could be as much as $16,000 before we have even had a true estimate on a potential foundation repair (bricks are soft and crumbling in a few places). Electrical upgrades could range from $6000- $20,000 depending on what we decide to go ahead with. We could also just simply do a bare minimum reno and operate as is for approx. $14,000 but the income will be impacted slightly and the value will not increase.
All and all, we are a little stuck in not knowing what to do while reno/upgrade costs keep raising and the sale price remains quite high for the area. We know that we are dealing with the bank, and that they typically follow a pretty strict price decrease structure. Can anyone offer any suggestions on how to proceed with a potential offer? At the current list price, even if we do the bare minimum in renos, the start up costs are too high for my partner to get a decent return on his investment and for me to be able to afford the start up.
All feedback, on any of the above, would be greatly appreciated! Thanks again!
- Ryan