So I recently discovered BP while researching how to scale out/expand property investing. In the short time I've been here I have learned a lot...too much! 6 months ago I spotted a commercial property on craigslist and I now own it! I did run some numbers before the purchase and was happy with the results, but I wanted to get an expert opinion.
Building is roughly 6000 sq ft, 3 story with a commercial unit on the main level and 4 apartments.
Commercial space - $500
Apartments - $300/ea (Tenants pay all utilities)
Light on top of building that banks rents $126
Total: $1826 per month
Purchase price - $92k (land contract)
Down Payment - $10k
5.5% interest on 20 yr mortgage with 3 year ballon
Mortgage payment: $564
Taxes - 3300 annually
Insurance - 300/month
A few things to note:
- Rents need to be raised. Rents range from $300 to 900 in the area.
- The city offers a neighborhood facade program where they pay 66% of exterior enhancements up to $45k
With that being said, did I do ok?
Adding a $150/mo. tucked away for emergency expenses and looking on the other side when the rents double its a pretty good deal. Congrats!
Congrats in the deal!
@James Lehnen Looks good. Did you get a new loan when you bought the property? If so, what did the appraisal come in at? Those subsidies to dress up the exterior of buildings can be very good, considering the price you paid, the amount available is a healthy amount.
Why is there a 3 year balloon? Have you planned adequately to pay that off?
Looks good to me. Cant believe you snagged a commercial property for your first one and on craigslist as well! Like everyone already said just find a way to refinance this you will be good to go.
Thanks everyone. I opted for a land contract because I couldn't provide the 25% down. I was ok with the 3 year balloon because I think the building is worth considerably more, although it hasn't been appraised. I will be taking advantage of the exterior facade program and also a lead abatement program is offered to the tune of $12,000 per unit. I'm hoping to get all new windows using the lead abatement grant. Also, the $126 light on top of my building is rented by a large bank; that has recently had a motivation to improve the surrounding area. I'm hoping this plays a role when I go to get the mortgage. Now...if that doesn't work, I also recently purchased a residential home and have around $40k in equity.
So far during ownership; the building has had very little need for maintenance. However, this leads me to my next question. I plan on upgrading the apartments and raising rent. Is there a general rule of thumb for renovation costs to rent? My plan was to invest $3-5k into each unit one at a time, raising the rent to $400-450 range.
Here is the rendering of the building proposed by the city.
@James Lehnen As for the costs of renovating units, it would depend on the extent of the work. Ask a contractor for bids. Also, check with the utility companies and find out if there are any funds available you might tap to insulate, and put in energy efficient windows and doors. You have a great project there, with all those incentives! Congrats!
@James Lehnen I read in an old REI book(from the 80's!) that stated you should try and get $2 in forced appreciation for every $1 spent in upgrades at the minimum. I'm not sure if that is a good metric these days.
Basically just figure what you can rent the units for after the renovation. Use the prevailing local cap rate to figure out how much you will have increased the value of the building. If you're getting $2 for every $1 spent, you're good. Again, the book is from the 80's though!
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