All Forum Posts by: Oren K.

Anthony,

Time is the most valuable commodity there is; yours and your clients. If you are willing to invest your time to save your clients time, that is valuable assuming they have some confidence in the result.

They still have to (should) do their own analysis but if you do a 'good' preliminary analysis, they have more confidence that it is worth spending their time.

Either do nothing or do a 'good' job of estimating. Fool me once with a 'bad' estimate and I will disregard your estimates in the future which would make them a 'waste' of your time.

Oren

Looking for a RE contact in the Cincinnati area that is focused on commercial retail leasing (specifically in the Springdale / Greenhills area).

Any one have a contact?

Oren

Cedric,

You appear to be on the right track in the sense that there is a value stack in taking land through the planning process, servicing process, construction process and onto stabilization. At each stage, there are costs and you are adding value but are taking the 'risk' of significant time (months or years).

My brother and I have done a couple of similar small plays and in our analysis, the largest share of the value stack is the getting through the planning process as it has the most 'risk'. There are several unknowns that you can not control (politics, neighbors objections, etc). Servicing and construction are well understood in terms of cost and time so while you make  profit on them, the margin is generally not as large as the margin on getting through the planning process.

So far, for us, the risk / reward ratio has favored selling after the planning process vs. going on.

Depending on how well you already know the various stages, you could keep going or as we are considering, after the planning stage, bring in a partner. You sell the property into the partnership at the higher value and share in the ongoing costs and profit. You get to learn from a more knowledgeable person and still share in the upside.

Good luck,

Oren

Martin,

I've probably walked the building.

Unfortunately can't be of real help regarding the actual rental rates. Using Rentometer, Craigslist and Showmetherent (and other aggregators), you get a fairly good idea but there is nothing like 'shopping' in person. Remember it is not just the price but also what you get; has the unit been remodeled in the past 10 (or more) years, is the property being maintained, etc.

Also, depends on what kind of tenant you want to attract; the CW Students, Cleveland Clinic Staff, Voucher. IF you are being more selective and screening tightly, you may need to offer a lower price but you may end up with better tenant profile.

Oren

Lucas,

Really need the amortization period to figure this out but lets assume 25 years.

Your payments are ~$584 with the principle portion being ~$167. You also add the $1000 towards the loan each month. IF the payment principle portion stayed constant (i.e. you were paying down $1167 per month), it would take 85 months to pay off; a bit over 7 years. 

Assuming the loan is actually a mtg with an increasing principle portion, it would take somewhat less. Best to use Excel to model it.

You could also shorten the amortization from 25 years to 9 years and your payments would be ~$1151.

Yes as stated this this can scale BUT remember to take into account little things like income taxes, capital reserves, etc.

Good Luck,

Oren

Hi Martin,

Assuming you mean one of the buildings right on Superior and north of Mayfield Road, it is a mixed area. As you get closer to Superior, I would say C+ / B-, more interior from the main road more of a B- / B.

Also, be aware that the property may be in the City of East Cleveland proper which if you read on BP a bit (or just Google it) has issues and does not have the best prospects. Having said that, in the Coventry Road, Superior Road, Mayfield Road triangle, because it has the cemetery on one side and the Forest Hill park on the other, it is somewhat isolated from East Cleveland and more influenced by Cleveland Heights. Also as a plus, close enough to CWU / CC / UC to attract people that go there.

Good luck,

Oren

Tim,

Not sure if it was overkill or just what they needed to do with the equipment available at the time. 

For my 39 unit, ~39,000 sq ft building, I have 2 x 399K BTU (total ~800K) with 5 stages each which were put in 3 winters ago. I saw substantial savings in gas (don't have the number at hand) and have not had to do more then basic maintenance / annual inspection. For next year, since heat rises, I will look into creating control zones so that upper floors do not get heat if they do not need it. The way it was piped, as built, may not allow for this but worth checking out.

Get a (some) good HVAC specialists in and get educated over the summer so you can make a decision before next winter.

As to leaving it for the next owner; your choice but for ever $1 you take out of operating costs, you get back $10 on sale (assuming a 10 CAP). If you intend to hold, the payback is slower but still there.

Good luck,

Oren

Tim,

A couple of points;

The level of occupancy will not affect heating costs a lot. The system has to heat the whole building and even if you to 'isolate' the non-occupied units, the heat will still migrate there via air flow or simple conduction. You might save a bit but you have to keep the water pipes flowing!

You mentioned that the furnace is ~16 years old. With a 10 unit building, you are, I suspect, at the higher end of residential boilers or the lower end of commercial boilers. At that time (~2001) those boilers were realistically 70-75% efficient realistically (or worse so forget about what their rating is) even with annual maintenance / cleaning of the burners. 'Modern' boilers are rated at >90% efficiency and do operate within a few points of that. As well, most current boilers are multi-stage so that in the shoulder season (Fall and Spring), they only fire up some heat as needed vs. all the burners at once.

I suspect that your current boiler is probably throws out 250-300K BTU (should be stated right on the side). If you get a good company out there to actually figure what what you need, just based on the higher efficiency, you can probably get it down to between 175-225K BTU which would save you 10, 20 or even 30%. The payback with a new furnace will be several years but if you are a buy and hold type owner, you also get some warranty and hopefully reduce breakdowns.

Use the summer to get educated and then in the fall, get some quotes.

Good luck,

Oren

Justin,

A simple ARV for the property would be the total Monthly Market Rents (after rehab), annualized, less the anticipated vacancy and expenses divided by the market cap rates;

((Monthly Market Rents - Vacancy) * 12 - Expenses) / Market Cap = ARV

Having said that, what you should really be doing is generating a Proforma Income / Expense statement (which needs a lot more detail then above) to get to the NOI. With that and the market cap rate, you derive the 'value' of the property (once rehabbed). There are lots of tools available on the internet (and even here on BP!) to help you do this.

If you can NOT prepare the Proforma (on your own or with your agent / broker), then I think there is a learning curve you need to go through before moving forward.

As to your other question regarding an appraisal; the appraiser is working for you and the report they generate only goes to you unless you authorize it.

Good luck,

Oren

Peter,

BP has a couple of tools (see under tools at the top :) you can use as starting point. Generally boils down if you are looking to live 'rent free' (e.g. 50% vacancy in Duplex) or you 'pay' market rent and income covers any mtg and hopefully some free cash flow that can be used to pay down faster (or in your pocket :).

Oren