All Forum Posts by: Dominic Lucarelli

Quite honestly, I don't have the cash. The retail spaces could be converted to studio apartments but I don't think he's got cash to do any of the work either. The utilities would need to be separately metered

Thanks for responding back! Quite honestly I'd forgotten if posted this here. I asked the owner for his sales figures, expenses, etc for last year. What I learned was shocking: he barely makes any money! The building is poorly managed, the owner pays the lion's share of all the utilities, his rents are under market, and his business is suffering. He spends more time trying to sell junky typewriters and greeting cards than acquiring business accounts literally one mile from his cash registers... The only thing keeping him afloat are the tenants upstairs. Some months the business LOSES money, so the income from the tenants pays the mortgage.

So, I didn't make a deal... I *could* put the needed effort and time into it and properly grow his business accounts and run the building right, but the return on my time and energy would be far too little too be worth it. It'd be easier to convert the entire building into a 5-plex than to assume ownership of that mess of a business. He literally handed me a box of register receipts for 2015 and said: "here are my sales from last year"...

So, I passed. And learned much about business than if I had done nothing, so I'm glad I came in off the sidelines.

Another way to think about it is: "which cost is greater, $15k or a lawsuit laying claim to my assets?" If a lawsuit were filled against you, all of your assets become the target. The LLC will minimize your exposure.

So the real question is: what are you willing to risk?

In your situation, I'd do as @Ian Hoover did

Following

If you intend to live there and house hack, will you be managing the property while you are there? This will be added cash back into your pocket/property.

Lastly, you stated that this is your conservative run through the data. Make some corrections to it (dumpster trash, etc. from above) then run a more aggressive set of data (higher rents, lower costs, maybe one where you occupy one unit, etc.) Take the average of all of them and see where the numbers take you. My guess is you'll be sitting around a 7 cap, which is about average here in PGH. But you should have greater appreciation in AZ so it's not a horrible deal, at least from my couch.

Check Rentometer and Craigslist to see if your rents are adequate for your area. If most BP-ers are saying that's a tad low, post a generic ad on Craigslist. I'm currently doing that on a prospective buy and apparently the $625 I'm seeking in my area is a screaming deal. In one week I've received 25 unique responses from Craigslist alone. This market research is paramount to your future valuation. What you can earn helps figure out what you should pay.

Just my 2 cents...

It's easy to let your emotions run rampant with all the blood, sweat, and tears it sounds like you've put into this place. Now that you've positioned it to be successful, your partner wants it all? 

If you continue on the current path, will the current deal make fiscal sense?

And honestly, it sounds like you're in a stronger position fiscally to take over this building than he is.

There's no right or wrong answer here. All of the suggestions above are good ones. Which one most works for YOU?

(Following this topic to see what you choose)

Welcome to the world of BP! There's tons of content here for rookies and experienced investors alike. So welcome, and roll up your sleeves and dig in!

@Account Closed, can you explain your math? I'm still new to cap rates so I'm following this topic intently.

Welcome to BP, @Brandon Andreola!

Thank you for your service!

I'll echo what everyone else has said and add a few more suggestions:

1. I just finished reading Rich Dad Poor Dad and Rich Dad's Cash flow Quadrant. It's an epic way to open your mind to the world of real estate and business. I highly recommend it.

2. You have an extremely unique situation being in the Army: the Army will pay all your living expenses! While serving, your cash flow will help you build immense wealth as long as you buy properties at the right price. You can take many more risks than most people.

3. And lastly... Never buy retail! Your money is made when you buy, not when you sell. That is the biggest truth in real estate.

Again, thank you for your service. If you have any questions, message me anytime.