All Forum Posts by: Daniel Miller

@Rick H. Good one!

I don't think I've been in Radioshack since the late 1990s...they were cool back then right? 

@Alex Anderson 

Alex, that is not a good deal. I paid $465,000 for my storage facility. I bought it in 2012.

A couple things...

1) The taxes seem really high.

2) Physical occupancy is around 85% for the Milwaukee area. I would go by that number and not the 7%. Self-Storage has higher vacancy rates than multi-family.

3) Self-Storage is very management intensive. You can expect a management fee to be in the 10-15% range depending on your city. There are consistent move outs every month that needs to be filled. There are 76 accounts to keep track of. The management fee is way too low. 

4) The subject property has the distinction of being unattractive to big REITs. They want a NOI that can support a full time salaried manager/team.

5) Utilities seem really low. We pay half of what you report annually, monthly in utilities.

Last year my facility did $97,000 in Gross Revenues and our expenses were $40,000. There are many miscellaneous expenses associated with storage. 

This does not look like a good deal to me. I would check the square footage of the property. How much are you paying per square foot? If it's greater than $60 per square foot that's too much. 

Also, I know Milwaukee is actually underserved in the Self-Storage Market. There is pent up demand. Other major self-storage players could come in and develop (if there is land available) and completely saturate the market. This in turn would drive down your occupancy, average rents, and increase the time it takes to flip a unit over. 

There is a piece of land near a high school in my county that I believe is a good buy. I have been on the money previously with land flips. I have doubled my money a couple times...(bought for $10k sold for $20K) and I kind of have the same feeling about this property, although I'd like to develop it. I could lock up the land (two lots, about 0.2 acres) for $100,000. I could build a 4,500 square foot building. Beyond that, the only inclination I have that this is a good deal is that it's at a lit intersection, caddy corner from the local high school! So, ultimately the value of this land depends on the commercial application. I want the application to be retail businesses that focus on the kids. What kind of businesses do kids like after school? 7-Eleven would not be interested. (Slurpees!) Them and most of the gas giants are only interested in making "destination centers" and will not develop small parcels for convenience, non-gas, stores. Any ideas? Is my idea good? 

@Ivan Roberts 

Im lazy so I'm going to copy this from my profile...

Along with being a Commercial Investment Associate, I manage a diverse 18 property Real Estate Portfolio that spans Apartment Complexes, a Storage Facility, Warehouses, an Office Building, Single Family Homes, Condos, Car Lots, and Vacant Commercial and Residential Land.

I played baseball until I was 24 years old. I played at a high level. I had absolutely no idea what I wanted to do with my life after I "retired" (shoulder and elbow were both giving out and I did not want to keep playing, making minimum wage, and go under the knife for both my elbow and shoulder) so I went back to college and got a couple college degrees. Business and Psychology. I thought psychology was really cool. I thought, "I'd like to become a clincial psychologist. I'd like to help people". I started volunteering at the Research Center at my college. I started filling out applications for graduate school and doing a lot of research into what exactly I wanted to study and specialize in. I was taking five courses, researching 20 hours a week, and also had agreed to do some work with one of my friends on the side. 

My friend was an older gentleman who loved baseball. He's twenty years older than me. He was a catcher and I was a pitcher. (This is amateur ball...just with my friends). He asked me if I had some time to look at something that he needed help with. I went over to his house and sat down with his Mom (whose 86 years old at the time) and she explains to me what they do. I start looking through their business's balance sheets and income statements. They are all handwritten. They have tax returns from an accountant but beyond that everything is handwritten. The year is 2011. I looked everything over and looked at her and said, "Marco (my friend) doesn't work?". She responds, "He works for me. He manages my property". I knew absolutely NOTHING about real estate at the time. My parents have a few things going on residentially but nothing substantial. I was never interested in it previously. I then remember saying, "So, basically you have quite a few properties that you own and manage. You get paid rent. That's what you live off of? She responded, "Yes, that's they way it has been for as long as I can remember". The next day I quit the research center at my college, pulled all my applications to grad school and started reading everything under the sun about Real Estate. 

It's been two and a half years. Marco and I are practically married. We talk on the phone 5 times day. I manage 16 of his properties, two of my own, and one for my parents. We have one more under contract as well. I bought my Dad a storage facility that operates at a 10 cap on it's cash basis shortly (two months) after that first meeting with Marco's Momma. I got my real estate license so any deal that Marco does know goes through me. I personally have two houses, a four-unit apartment complex (I bought all of those with $3,500 down) and have saved up a substantial amount of money to put into large multi-family property (12-18 units). 

@Huy N. I made my own Excel Spreadsheet to analyze deals. It was one of the first things I did. I analyzed 500 deals before I even made an offer. I would analyze every MF property that came on the market every day for 6 months before I made an offer. You are 100% right. If it feels right, has a clean title, and stupendous numbers don't wait til Monday to make the offer!!

Good Luck Arnie! That's my goal every day. To help my properties (family included) reach their full potential economically and aesthetically.

@Cynthia Dixon 

I wouldn't worry about the assessed values. If I can purchase a property for the assessed value it's normally a killer deal. But, they have no bearing on the actual value of an income-producing asset. There are checks and balances  that keep properties' assessed values from increasing and decreasing substantially. Many properties in my county are still leveling out after the 2008 bust. The county's taxes are still higher than many believe is fair but the county is capped as to what percentage of total assessed value that they can decrease and increase annually. So, the property in question might have spiked way too high in 2005, 2006, and 2007. The property appraiser is more than likely still bring down values, albeit at a slow pace, from the economic and housing bust but can only do so at a stipulated percentage of total assessed value annually.

Definitely want to go with 50% of Gross Revenue for expenses.

$400,000 Purchase Price

$84,000 Gross Revenue = $583.33/unit in monthly rent

$42,000 in expenses

$42,000 NOI = 10.5% Cap Rate

If you put down 10% (some lenders might require more. If you move into one of the buildings you might be able to get away with 10%) your monthly payments at a fixed rate of 6% (commercial is higher) for 30 years your annual payments would total $25,816.56.

$42,000 - $25,816.56 = $16,183.44. Your initial Cash on Cash Return based on the seller's numbers is 40.45%.

Yes, you do have to get a commercial loan. Commercial loans are specficially for multi-family properties with 5 units or greater. No way around this really. 

This looks like a great deal but there are a few things I'd look into. Is the building really old? Is it 100 years old, frame, and two-story? If so, your expenses might be a little higher. Do both roofs have life on them? It will cost you roughly $15,000 to do both roofs. How old are the hot water heaters? They last 6-10 years. They cost approximately $650 to replace. Is there any knob and tube wiring? Are there active code violations? What kind of area is it in? If it's in a rough part of town your occupancy rate might be lower than normal. Is the $84,000 based off actual numbers or is it based on rents and occupancy that the buyer believes is obtainable with a new owner (pro-forma rents)? 

Keep this updated. Looks like a great deal. I'm curious to see what happens.

$159,000 is awfully low for an 11 unit building. These are some questions I would ask if I were in your shoes.

1) What year was it built? I would be concerned that significant deferred maintenance is rearing its head right around the corner. Is it made of concrete or wood frame? Also, a very important factor. Concrete requires much less maintenance all the way around. 

2) Why are only a fraction of the residential units rented? Does the area possess inherent problems with keeping a residential building fully occupied? Or did the Landlord slum out the place for years until it was nearly uninhabitable?

3) What are the store fronts zoned for? DDAs have much less power/authority in other cities. The DDA in my city is not nearly as hostile as the one he describes.

4) Are there any current code violations?

5) I would want to know what seller paid for it (Look Online)

6) Have the police been to the property within the last two years? Check Police Records

I would want to see all the apartments. A general rule of thumb I use is that it costs me $1,000 per square to completely gut, rebuild, and update an entire apartment. That means everything...drywall, flooring, kitchen, bathroom. You can add a little more if you are doing two bathrooms. I would look at all the units and determine a rough estimate of how much it would cost to get the building operating at peak efficiency.

As your looking around take notice of the floors. Do they slant at all? Are they uneven? It could be nothing or could be a myriad of problems. The floors might be deeper in one corner than in other. Take notice of any discoloration on the drywall. If you see any circular shapes on the ceilings there is/was a leak.

Your idea is right on. 11 units for $159,000 is a good deal. Do not pay attention to the Cap Rate as its currently operating. Use your imagination. Where could you see this building operating? What do you have to do to get this building operating to peak efficiency? 

I don't know the area so take the following numbers with a grain of salt...

9 one bedroom units rented at $575 (let's be conservative)

2 store fronts leased at $600

Total Gross Revenue - $76,500 - 15% (sticking with the conservative theme) Vac Loss

Total Revenue - $65,025.00

Total Expenses (50%) - $32,512.50

Total NOI - $32,512.50

Potential Vale of Property if sold at 9% Cap Rate - $361,250

Like I said, I haven't seen the property but that's how I play it out in my head. Looks like a winner just need to make sure your not getting stuck with a lemon of a building.

Its never been on the MLS. It was an off the market deal. I never did make the offer the seller changed her mind. $230,000 wouldn't get a return phone call even if the listing agent was a relative. The Downtown St. Petersburg rental market is really hot. You cannoy buy for less than $55,000 - $60,000 a unit. Units in the Old Northeast are going for $100,000+ a door. Rents are all $1.25 - $1.50 a square foot for existing buildings and new construction is getting $2 a square foot! Retail space on major corridors are up over $35 a square foot annually. There are no more deals here for the time being. Cash talks and cap rates on all properties (industrial, multi-family, office) have all been pushed to below 6%. It's definitely a seller's market. I low ball everything...that's just the way I am. I haven't made an offer on anything in six months...prices are out of control over here. There was a 9 unit apartment building near the water in DT St Petersburg that recently sold for a 4% Cap Rate. $925,000 for 9 units and the building is approximately 7,000 square feet. This was an old article but I thought I'd give an update...

@Brandon M. 

I second what Brandon said. Chris from Anchor Title is one of the most knowledgeable title agents I've worked with. He cleared up a very difficult deal for me and was very professional. He probably knows how to handle it.