All Forum Posts by: Rodolfo Canon

The Canon Property Group at Your Castle Real Estate is a small team that has built its business by understanding our customers’ needs and objectives and finding either buyers or sellers for them. The commercial market today is a seller’s market. We receive between 4 and 6 unsolicited, out-of-state inquiries every day from investors seeking opportunities in this very hot market. As a result of that interest we researched the number of transactions in 2017 in a narrow value range of $2.5 million and $5 million and discovered there were 237 transactions in the Denver MSA with a total sales volume of $818,000,000.

That tells us there is a lot of opportunities in that segment. For every commercial transaction you see in the news, those 85 million-dollar apartment complexes, there are 20 transactions that didn’t make the news that are done by people who are everyday investors. These Mom and Pop investors are folks who have saved some money, bought a building, and sold it 20 years later, and retired. Or moved up to a bigger asset through a 1031 Exchange.

This segment is approachable by a large segment of the Denver investment community. Potential investors, who have saved some money, or who have some equity in their house, have an opportunity to get into commercial real estate investing without being one of these hundred million-dollar projects.

For these smaller investors obtaining financing is a critical component to buying real estate. In our podcast, we invited a special guest, Caleb Neumeyer, the Vice-President of Commercial Banking at Bank of Colorado to discuss commercial lending, or, “lending for a business purpose.”

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Read the blog article at https://www.canonpg.com/denver-commercial-real-estate-lending-from-a-bankers-perspective/

You can use Reonomy to locate multifamily properties with data on date purchased, purchaser, and price paid.

If your need is to find contact information that would include name of the owner (company and contact), email address, home address, and phone number, our experience is that Reonomy will have 50% to 60% of the data you seek. 

It is probably better than LoopNet or CoStar, but still has many weaknesses, one of which is the ability to manipulate the data like you might want to. 

Remember that the net positive cash flow is good, but the asset value appreciation is where the real wealth-building opportunity lies. 

As others have said, the answer your dilemma is not clear. It all depends upon your needs. 

As these new builds arrive in LoHi, your property value will be pulled upward. The market rents you will be able to charge will also appreciate. 

What is it that you need? 

If your concern is just about the future demand and prices, I would recommend that you hold tight and ride the wave. If you need to cash out, selling now is not optimum. February, March, April is when sellers achieve the highest prices. 

If your concerns are not to pay capital gains taxes, do a 1031 Exchange. If you plan on continuing to invest and have a long-term perspective, then creating an Opportunity Fund and investing in an Opportunity Zone property might be a better solution.

What is it that you want or need?

Hire an attorney. Once you know the issues, negotiate with the seller. 

A risk: "designated historic." In Denver this means you cannot alter the exterior of the building and you need the Historic Commission approval. If the town has an officially designated historic district, be very cautious. 

Taylor,

You should go to the Your Castle Real Estate seminars on the Denver market. They are free and are based upon the analysis of 40-years of data from Denver, Colorado Springs, the mountain resort areas and Fort Collins. 

We just had our quarterly meeting at which the new analyses were presented. All information is data driven. The market is undergoing a slight correction, but part of it is seasonal. Inventories are up (which is a good thing), prices are still increasing at above average rates (6%) but not as fast as the first quarter of 2018 over first quarter 2017 (10%). 

Trust the data, not connections. No one has a crystal ball. However, this market looks like a statistically stable market (goes uppitiest and down) and unless there is some significant outside event, it should continue as is.

Go to the seminars. Learn from the experts.

@David Monk,

What a coincidence! At Your Castle Real Estate's quarterly meeting we had a presentation on the economics of supply and demand in the Airbnb market. It does not include vacant rates, but it foes clearly show the variation in demand by day of the week and the prices associated with that variation. Send me a message and, if you would like to have it, I will forward the study to you.

Regards,

The Denver area is, as you stated, a bit crazy, but it is not impossible. I would encourage you to attend the free real estate investment seminars at Your Castle Real Estate in Denver. 

I have been in the real estate world since 2006. Over the last three years I have bought, developed and sold almost $70 million in commercial real estate. If commercial is of interest, send me a message. 

Regards,

@Gladys Pilarski, The property value comes from its income. There is a simple formula called "IRV." You can make some assumptions about the property, creating a "Pro Forma" income statement. For example, an assumption would be that you can repair the units and rent all four of the vacant units at the same rent as the other 10. The timing assumption would be that you can rent them immediately (not likely)

Net Operating Income (I) =   Capitalization rate (required rate of return-R)   X   Value (V)

NOI = 14 x $1035 = $14,490 x 12 = $173,880; minus 30% in operating expenses (reasonable assumption) = Net operating Income (I) = $121,716.

R = 6% (assumption of the required rate of return on your invested capital)

Value is equal to $121,716 / .06 = $2,028,600 in the Best Case Scenario

If fully rented at $1035 per unit and A 6% cap rate, the property is worth ~$2M. 

However, that is not what you would be buying. You would be buying a property with 10-units rented, two vacant, and two in need of repairs. 

Further, if you do not know what other similar properties are renting for you might be buying a pig in a poke.

You also do not know when the existing tenants' leases will expire 

What if they expire on the same day? What happens to your cash flow? 

What is the history of tenant turnover? 

Do they renew their leases? If not, why not?

What is the estimated cost to get the two units in need of repair to the market standard?

How long will that take (they will not be producing income)?

@Charles Kao is giving you some good advice. Get educated on the industry. 

Our investor had significant experience in development and great risk tolerance. He trusted me and my contractor to get the project finished. He kept his eye focused on his primary objective and that was to use the residential part of the building to give him a premium retail location for free.

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Website: https://www.canonpg.com/denver-condo-development-project-on-tennyson-street/

I would call an attorney, pay him his fee, and do what he recommends.