All Forum Posts by: Eric Bowlin

I new to commercial property and I haven't yet begun investing in commercial real estate, though I do invest in multi family residential properties. Lets look a property for sale and let me know what your thoughts are. I don't intend to buy this because all my money is tied up purchasing a couple multi's..but I want to start learning.

Office condo, 40k. 3600 sf in a prime location down town. 1800/month condo fee includes all utilities and maintenance. Local rents are around between 10-15/sf..I'd say 12. Office is in great condition, good floors walls and ceilings, no work required. Good office space for almost any business type and this is what is predominately in the area.

How would you approach this deal...or would you run away? Divide and rent, rent it out as a big unit..other thoughts?

Your question spurred some thought.... So I ran some numbers.

If you have 50k disposable income/year (100-150k earnings?) and you buy one multi-family with that money and it nets 10k/year (25% rate of return)..Then every time your multi's accumulate 50k you buy another multi..and so on...You will be worth around 26 mil after 30 years. I assumed each property increases in value by 3% per year. You would have somewhere around 100 buildings (around 300 units with this calculation)..12 mil in earned income and 13 mil in equity.

I made a number of assumptions with these numbers (no inflation, fixed rents, etc) but the concept is the same.

I would say it is not possible to get to 100m with a fixed strategy that involves low risk and no partnering. If you want 100m you need to partner and take some risks.

One the flip side....If you have a dedicated strategy and stick to it in the long run, you can become a true 1%er simply by buying property. Isn't that our goal?

Sure, why not? I don't know if there is any limit to personal drive and ambition. 

15k is a decent amount to get an owner occupied 3 family building. FHA will do 3% down and its a good start if you can take the hit and live in a multi. Thats how I got started and now my wife and I do nothing but investing.

Good point @Roy N. . I can absolutely see that being the case, though I have no experience in that size of building. I don't yet have the money or network of people to support paying that sort of down payment.

Obviously we both responded to different parts of his post! I was talking at the smaller end and you were talking about the larger buildings. 

Just my thoughts.. I'm not an attorney and can't give legal advice.

Do your due diligence on the property. I would also make sure an entity is established where you both have an ownership stake. Make sure you consult an attorney and have a good operating agreement. I like to control things so I would always have a way to override the other person in a dispute...say he wants to add thousands in improvements that you don't think are necessary?

If he is going to contribute more..such as doing the rehab..ensure he is compensated fairly but don't allow him to make the partnership his piggy bank. A person who is the 'investor' and 'contractor' has a natural conflict of interest if other investors are involved. Cost to renovate is shared between you both while he is the only one collecting for the reno. A 50k project might be a "75k" project where the difference is left in his pocket.

I have found many Great deals on MLS.

Often you think...if it's so good why hasn't someone else taken it?... I have some niches that I fill that few others can. I can find value where others cannot.

Asking price is meaningless. Often I don't look or forget what they are asking. I calculate what it is worth to ME and offer less. A 4 unit building was asking 125, I offered 65. They countered 75 and I took it. After 10k work it appraised at close to 200 and cash-flows VERY nicely. Truth be told...I probably would have paid close to asking for it.

If you have an eye for the deal and know the risks I believe you can find a good deal on any platform. Find a niche; fill that demand; profit.

Yes. True. It's unfortunate thought.

Cash is king therefore cash-flow is the master of us all. I just made that up but it makes sense.

To make any money on the sale, it needs to increase in value by 7-10% just to cover your REALTOR fees and closing costs.

On top of it, it will need to appreciate by more than what your losses are per month, which @Dawn Anastasi kindly broke down for us.

If you hope to earn a 10% return (similar to what stocks might get?) then the 385k house needs to be....

385k

+ 40k closing costs (purchase and resale, 6% broker fee, attorneys fees twice, title insurance etc)

+8k (10% return on your Down Payment of 77k)

+4500 (loss on rents for one year...I always go with worst case scenario)

Total of $437,500.. 

If you think the property will sell at 437,500 in 12 months, you will have exactly broke even compared to your return from stocks. This does NOT include whatever you value your time at. Overall this means your market needs to be appreciating at a rate of at least 12% a year.

Don't forget to go to your local courthouse and do an evictions record check! Some evictions may not show up in your background search but the court will have everything with their name on it.

Yes, depends on the state. In MA property managers and property owners do not need to be real estate salespersons in order to rent the apartments...but in many states you do.

Personally though, you couldn't pay me enough to deal with someone else's problems.