All Forum Posts by: Alex Martens

Hi BP community,

I purchased a small cafe in a prime location in my town. The cafe is about 900 sqft with all commercial equipment, booths, coffee machines, etc. It is a turn key cafe. The purchase also included intangible assets like recipes and the cafe name. On top of all this, there is also a house that came with the lot. It is run down and needs a ton of rehab, but I saw this as added value. The previous seller was originally asking 200K for the property. I ended up securing this as a seller finance deal at 100K, with 50K down, and the rest amortized over 10 years at 5% interest. The breakdown of the purchase was 80K as the real property, and 20K for the assets of her business. 

I have two people wishing to rent out the cafe, and run it essentially as it used to be run by the previous owner, with the same name as well, which I now own. I am having a hard time coming up with how much I should charge for rent. I have heard that rent should be 8-10 percent of revenue…If that’s the case, would I just be trusting what these people will be saying as far as how much revenue they think they can bring in? I feel I have a pretty good idea as to what they should bring in, based off of previous owner’s sales, and how often they intend to stay open throughout the week. Also, since they want to keep the name the same, should I also be leasing out the name to them as well? I’m trying to compare other commercial properties that are similar and I am having a hard time doing that..I know commercial properties are compared differently than residential. 

My holding costs for the property are about 1200 a month. This includes budgeting for repairs and capEx. This is actually my first property. I wasn’t planning on going the commercial route, but for the location and the price, I didn’t want to pass it up. Thank you all in advance for any help you can give!

Alex

Hey Dustin,

I just went through this decision making process this week, so I’d like to share with you my experience and what I did. So I found a small, local bank that does portfolio loans. A portfolio loan is when the bank keeps the loan on their books and does not sell to a secondary mortgage market. This means the local bank can lend money on the terms they will allow, vice what the secondary market will allow. This can mean more leniency for lending. 

I was very honest with the woman I was working with as to what I was trying to do and what my goals were. This is important because it will help the lender best work the situation through with you. It turned out, that since they are a portfolio lender, they could give my LLC (if I made one) a "conventional" 30 year loan at 3.75% The down side was that it would be an adjustable rate after the first 5 years up to a certain percentage. My other option was get a conventional loan in my name at the same initial interest rate, but it'd be fixed for the 30 years. After weighing the options, I figured that it was more worth while for me to take the fixed terms in my personal name than get the adjustable rate just for that sake of it being in an LLC. If in the future I feel the need for the property to be in an LLC, then I'll see what I have to do to get it done and go from there.

My point with the long story is that if you should find a portfolio lender or two, and schedule a meeting to open the line of communication and see what they can offer you in terms of both an LLC or just you personally. I hope this helps. Best of luck!

Hi Nathan,

Since you have spent a good amount of time educating yourself, I am assuming you have learned how to analyze a potential deal, and you’ve probably even practiced it time and time again. If you trust your ability to accurately analyze a potential deal, then that should put your mind at ease. If the numbers you run work, then use that as your feeling of safety. Best of luck to you!

Hi BP community,

I'm hoping some of you can give some input...I am all set to close on my first SFR in Jacksonville, NC. I live in NY right now so buying my first property out of state was definitely intimidating but manageable. Long story short, the house was listed at 105K and my offer was accepted at 100K (which honestly I think was probably too high of an offer). I just got the inspection report back and I called my grandfather who happens to work for the same company, just in NY, to get his input. Our concerns were as follows:

1) Heat and A/C are 22 years old and will need to be replaced almost immediately.

2) From photos, it looks like there are some trails from termites...nothing mentioned about it though on the report so maybe they're old trails.

3) Exhaust fan from bathroom not ventilated properly, which I know isn't a huge deal.

4) All of the piping is galvanized steal and definitely rusting, so will have to be replaced at some point...not too sure when though

5) Is is only a 60 amp breaker panel so I believe the electric would have to be updated, as well as run grounding wire to the outlets.

I'm deciding what my strategy should be seeing that I'm already stretching the budget (not unsafely) just to cover the down payment and closing costs. So I wont have enough cash to address all of those issues. Do you all think I should negotiate my offer significantly lower to balance out the cost of all these issues? Or would it be more responsible to back out of the deal and look for a better property? Honestly I kind of feel like an idiot because if I asked my agent the right questions I could have noticed some of these issues before even putting an offer in, but it is what it is now. Thank everyone!

Alex

@David Pere I'd be more than happy to chat! Funny, I was actually just about to message you!

@Dalyn Hazell Thank you for your response! That is great advice. I definitely need to learn to use the site to its full potential.

Hi BP community,

I'm hoping some of you can give me some guidance. I am actively looking to buy my second property to use as a rental. I currently live in upstate NY but am looking in the Jacksonville, NC area due to the military bases and my high potential to move there. 

Anyway, I found a property that looks like it could be a solid deal, partially because it is advertised to need some new flooring because of water damage. The water damage intimidates me a little bit so I'd like to know more about it. If I wanted someone to look at the property to assess the water damage, and the likeliness that it would happen again, who would that be? Would it be a PM? home inspector, or just a general contractor? Also, I have no contacts in the area at this time. Thank you in advance for all of your input and advice!

Alex

@JD Martin Hi JD thanks for the response. I like your suggestion. So we will both split the property, and him paying rent to me essentially takes care of what his portion of the mortgage would be...and then he gets his share back once I split the profit with him.

@Aubrey Tatarowicz Hi Aubrey, thanks for the response! What your saying makes sense. So what we were think is that we both own the property, so we’ll split the down payment, the mortgage and monthly profit...and that’s where it gets fuzzy for me. If he’s paying the mortgage with me, should he be paying rent? I figured this way could work because if he’s considered an owner/occupant we could get a lower down payment loan.

Please correct me if I’m wrong, but I think what someone said above could solve this. Where just have him pay normal rent (ignoring splitting the mortgage) and I just give him half the profit back?

Hi BP community,

I hope this post finds everyone well. I'm looking for some opinions on me and my brother's situation. I am looking to buy my second property (ideally a multifamily), and coincidentally my brother is looking to move out of his current apartment that he is renting. He made a proposal to me that we go in on a deal together, which I think would be great so I don't have to wait as long to get another property. 

He is proposing that he lives in one of the units and of course we rent out the others. The way I see it working, is that it would kind of be house hacking for him, but in return giving less cash flow for me because of him occupying that one unit. Or could we play it as maybe he still pays rent, but just less? The downside for me is less cashflow, but since I will be out of state, it will be nice to have him there and save us management fee's as well as lawn and plow services. 

What do you guys think? I'm sure its going to depend on the number and how much we can rent and all that...but just as a principle, should this be avoided, or is it still a good opportunity make money? Thanks everyone!

Alex