Updated almost 10 years ago on . Most recent reply
Agreement for Sale - Lease option type strategy
Hi everyone,
I am looking for some input on a potential listing I found. It is an older 3 floor residential / commercial building. 3 apartments, 1 store front. The owner is selling as a Seller Financing option. Which turns out to be, what he calls an "Agreement for Sale". He says it is really big in the west coast of Canada. I am not sure about this strategy. I am wondering if this is like a lease option agreement or something... From what I have read, the "Agreement for Sale" - I would need to be foreclosed on if I started missing payments, with the opportunity to build myself back up. Compared to a lease, where I would possibly loose the down payment and everything immediately.
Anyways, details - List $339,000. he would like $25K down.
2 - 1 Bdrm aprt $700 includes utilities
1 - 2 Bdrm aprt $500 ++
1 - 1000 sq/ft Store front $1100 ++ (Currently Vacant) - Blaa...
Utilities Run $200 hydro, $300 Water, $335 property Tax, $200 insurance.
Vacancy, CapEx, Maintenance - 5% - $150 each... I am sure I am low for the CapEx and Maintenance. - There could be lots to work on....
Total Operating exp $1600,
I have been talking to him, and he is down to $299,000 at 4.95% 35 yr am, with 5 yr renewal = $1404/mnth
And Since i do not want to use my own money - he will do a 2nd Mortgage on my current rental $20K @ 7% interest only payments, $115 mnth which i have included in the analysis. (is this in it self a bad move)
I have done the rental Calc... looks bla... -$5 cash flow per month... NOI $16,800. Pro forma Cap Rate 4.8, Purchase Cap Rate 5.6%
The only reason I am a little stuck at wanting to go a little deeper into this deal is because, the area is decent for better rent, and I believe the apartments are all under value in terms amount... I could probably get the 2 - 1 bdrms for $7-800 ++, and the 2 bdrm $800+... as for the store front, it has been empty for a month or so....
Its located in Ontario, about an hour east of Toronto.
Any thoughts, ideas, criticism, would be greatly appreciated.
Lee
Most Popular Reply
Hi @Lee Jackson, my only comment after a quick scan of your post, is to be careful with the vacant retail unit, if you don't have experience with retail space. They can remain empty for quite a while, and they are often the "face" of a mixed use property, so if you're ever desperate and take on a less than desirable retail tenant, your whole property will be a reflection of the image that retailer puts out.