[Calc Review] This is an 18 room commercial

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[Calc Review] This is an 18 room commercial

Devon Cornwall
Member since 2019 · 47 posts · 15 votes

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*This link comes directly from our calculators, based on information input by the member who posted.

This property was happened across on pure luck, the numbers used are the givens by the listing agent. Seller is willing to carry financing. Is this a deal too good to pass up? Or am I not including the possibilities of additional losses?

From LA: "18 ROOM - ROOMING HOUSE WITH COMMERCIAL FRONT - LOCATED IN THE DOWNTOWN AREA - EXCELLENT RATE OF RETURN! MANY RECENT IMPROVEMENTS INCLUDING - UPGRADED ROOF ($30,000.00)-2 YEARS - WINDOWS UPGRADED 8-9 YEARS AGO - 2 WATER HEATERS, FIRE INSPECTION COMPLETED - AND MANY MORE IMPROVEMENTS - BUILDING IS IN A EXCELLENT RATE OF RETURN - BUYER MUST ASSUME FORGIVE ABLE LOAN HELD BY CMHC IN THE APPROX. AMOUNT OF $32000.00 AND EXPIRES IN THE YEAR OF 2023 INCOME AND EXPENSE AVAILABLE - OWNER WILL ASSIST IN FINANCING IF NECESSARY - DON'T MISS OUT ON THIS TRULY RARE FIND!! BUILDING IS KNOWN AS THE ABIDING HOUSE"

This is in Ontario, Canada. So any Canadians out there with insight would be great. :)

Thanks again,

Devon

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Taylor Servais
Ottawa, Ontario · Member since 2014 · 33 posts · 16 votes
7y

The true management fee should be higher (10-15%+). You'll have 2x the turnover, pest problems, maintenance, and deal with more bs. 

The return is not good enough to justify your time. Long-term financing of this asset is a pain. Liquidity is also an issue (as highlighted by the seller's willingness to do a VTB.

The asset seems like it was or could be a 4-6 unit building (most likely highest and best use). What's the stabilized cost of this type of asset in the market?  $300k? Deduct the cost to convert to this use... Pretty soon becomes uneconomical.

Another quick way to look at it is on a price per square foot basis. Doesn't tell you the full picture, but provides a quick benchmark. 41 fourth is ~4,600 sf or $100/sf. 151-157 is 11,000 sf or $45/sf. Why the big discrepancy? Just some things to think about.

Unless you can get minimum 20% cash on cash with attractive term on your financing I wouldn't even entertain it. 

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  • Andrew Angerer
    Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes
    7y

    Looks like your closing costs are too low, typically 5% is an accurate number.

    Typically you should aim for properties that follow the 50% rule, which means that your expenses should be around half of your income from rents. Try and see if you can increase your rents or if there is a way to lower your expenses. 

    If this is owner financing, be sure to have a professional on your side to look over all the details and make sure it looks legit. 

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  • Steven B.
    Investor · Niagara Falls, Ontario · Member since 2016 · 80 posts · 24 votes
    7y

    a quick google found a lot of negativite press on this place. Are you ready for it? Why did you use 20% vacancy rate. 

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  • Devon Cornwall
    OP
    Member since 2019 · 47 posts · 15 votes
    7y

    It's currently sitting at around 60% tenanted. I felt that if this was a situation of tenant turnover rates a 20% vacancy seemed more accurate than a 5%. Perhaps I am misunderstanding the vacancy expense section. 

    I understood the negative press and ran the numbers to see if this could be a good deal (by the numbers). 

    I am not ready yet for something of this size. 

    Have I used the calculator correctly and would the numbers alone (disregarding the negative press) make this a decent deal. 

    I think I'm asking if the logic I've used to evaluate this property is accurate to an analysis that would ultimately be profitable. 

    Thank you, 

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  • Taylor Servais
    Ottawa, Ontario · Member since 2014 · 33 posts · 16 votes
    7y

    The true management fee should be higher (10-15%+). You'll have 2x the turnover, pest problems, maintenance, and deal with more bs. 

    The return is not good enough to justify your time. Long-term financing of this asset is a pain. Liquidity is also an issue (as highlighted by the seller's willingness to do a VTB.

    The asset seems like it was or could be a 4-6 unit building (most likely highest and best use). What's the stabilized cost of this type of asset in the market?  $300k? Deduct the cost to convert to this use... Pretty soon becomes uneconomical.

    Another quick way to look at it is on a price per square foot basis. Doesn't tell you the full picture, but provides a quick benchmark. 41 fourth is ~4,600 sf or $100/sf. 151-157 is 11,000 sf or $45/sf. Why the big discrepancy? Just some things to think about.

    Unless you can get minimum 20% cash on cash with attractive term on your financing I wouldn't even entertain it. 

    1Reply
  • Devon Cornwall
    OP
    Member since 2019 · 47 posts · 15 votes
    7y

    @Taylor Servais, 

    Thank you for looking at it. Could you please explain where your numbers came from for the price per square that you found?

    I agree that the HABU is definitely a conversion to a 4 unit 3bd 2ba type of a building with 2 unit 2bd 1ba. I'm uncertain what that would be as far as a commercial renovation cost.

    I appreciate your input and have really brushed this aside as I've found better deals but it might be worth a second look if I can get some appeal to it.

    Good thinking and thank you for the great idea,

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  • Taylor Servais
    Ottawa, Ontario · Member since 2014 · 33 posts · 16 votes
    7y

    @Devon Cornwall

    I used Google maps aerial view and measured the outline of the building. Not the most accurate way of measuring the property, but it provides a quick guideline. I divided the asking price by sf.

    The conversion would essentially be 3 to 4 new kitchens, bathroom, wiring, permits, etc. Very uneconomical.

    Best of luck on your search!

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