All Forum Posts by: Nate B.

@Scott Meyers  Thanks so much for the feedback.  Understand seeking out professional advice...just wanted to ping here to get ideas and potentially meet someone like yourself.

We close today, so modification of the contract isn't an option.  Lesson learned.  This is a very "backwoods" amateur transaction...to include myself to some degree.  If it uploaded, their "financials" are attached.  Literally a piece of scratch paper.  Hence, I feel I'm buying at a discount to cleaning house of a ill-managed property.

Your comments on NOI makes complete sense, and I've been trying to eductate them along the way...and myself. The sellers, nor the realtor, understood NOI, cap rates, etc. It's been interesting. I have an acquaintance with over 4000 units that has taken a look and offered a bit of advice on the big picture...just not specifics like contracts, voiding them, etc.

We've walked the property and inspected locks, etc.  I feel pretty comfortable in that arena...only catch is these guys have never sent invoices, don't offer autopay, and generally let 6 of the tenants to consistently be delinquent for 30+ days with no ramifications.  Hence the clean-up.

Your take on annual versus monthly contract is interesting.  I'm increasing rents almost immediately, so don't anticipate an increase for a while.  The administrative burden of monthly payments, non-pays, etc. may not be worth the lost rent of "1 month free"...and could always increase rent after contract expiration.  Again, I'm an absentee owner doing more of the administrative management with local management for lock-outs, etc.  Thoughts?

I'm also looking for a good automated solution for invoicing and payments.  There are a number of online options...and of course having an account just to receive direct deposit funds.  Any recommendations on what works for you?

Thanks so much!

@Matthew Kreitzer and @Mindy Jensen  Thanks for the feedback!  Yes, our area is about the same...typically 98% occupancy...this sits at 75% right now...goes back to mismanagement.  Concur that in the long-run it will be good to clean house a bit. 

@Brad M. and @Roy N.  Thanks for the feedback.  Roy, I think we're on the same page on this.  We're purchasing the asset, not the business.  New name, contract, etc.  Redoing all paperwork.  

My intent was to honor the few annual contracts; however, the sellers executed an annual contract a couple days before closing, which is the main contract in question.  The others are primarily monthly or about to expire, so easy fix on those.

No, it wasn't in the offer to purchase contract to clear through me...lesson learned...which is much what this project is about.  

Regarding the potential backlash for poor business decision...we're looking to clean house.  Five years of mismanagement has allowed folks to become accustom to extremely reduced rates and in many cases just don't bother paying since previous owners wouldn't go after them for payment....or other random barter agreements for other services provided to sellers.  Although it might be painful up front, we welcome some of the tenants departing to make way for fresh faces and higher standards of management.

Again, appreciate the feedback and we'll see how it plays out!

Must annual contracts be upheld after transfer of ownership?

Scenario:  Closing on a storage facility.  A few annual leases in there at under market rents.  I was going to leave them in place; however, this weekend the sellers had an existing tenant sign an annual lease at 50% the market rate.  Definitely smells like a buddy hook-up to try to protect him and hose me.

I'm intending to raise rents by 1 October.  I'm now of the opinion to cancel all contracts and start over.  The month-to-month are easy...new rates are X...take it or leave.

May hit up an attorney, but not big enough money to warrant paying for a sit-down with an attorney.  Just annoying.

Seems it's not someone's home, so I can do what I want with the commercial property...tear everything down, if I wanted.

Thoughts??

Well put. Getting it there (proven cash flow) will take a bit of time, but might be worth it. I was assuming an 8% cap rate...which is also what the appraiser used. They had difficulty finding comps, as you stated; however, they used some of my projected numbers for valuation. Where we differ a bit is in expenses. Theirs seemed high, and included some I know I won't have, bringing NOI to $18,800...also that way the value is close to sales price. God forbid an appraisal doesn't come in within 2% of contract price!! The prospective buyer sees the potential, and that's what counts in the long run.

Thanks for getting me back on track with cap rate comparison!

Yep. That would be net in my pocket after everything. NOI is projected around $2100...then mort and CAPEX to get to 700-900.

Hey Guys!

Thanks for the feedback and sorry for the delay....and it's a privilege to serve...I'm sure @Bryan C. can attest to that!

Being absentee certainly creates hesitance; however, the fam is on board.  There seems to be an opportunity for on-site management with the current tenant in the office space...simple stuff, opening units, etc.

After closing, we will likely drop a number to the prospective buyer and see what plays out. I appreciate @Jerry W. 's hold approach and would welcome if the property doesn't sell right away.  For the right price, it's worth a shot.

To answer Jerry's questions:

- Property values are increasing...albeit not crazy fast.  Sellers experienced about 8% annually over 5 years of ownership...the area is generally 3%.  There's a $15M road project taking place next year out the front door of the property, increasing traffic flow once complete....already about 20K cars per day. 

- Occupancy rates in the area are about 98% for storage.  New ones going up all around.  This one is ill-managed with zero advertising, no accountability for accounts receivable, and is sitting at 75% with rates at up to a 50% market discount.

- Property is on a 25 year mort to keep payments down right now...may/may not push for payoff if I can get cash flow up a bit.  Want to hold cash for other projects.

- Conservative numbers, I'm anticipating clearing the $20K in about 24 to 30 months...not including any appreciation/principle buy down...just net cash. 

Hope that gives some context.  

Thanks and have a blessed one!

I close on Friday on two buildings (30 storage units) and a small office space.  Currently ill-managed with 27% vacancy...while the area is about 98% occupancy on storage.

Anyhow, have another buyer interested in picking it up from me after closing.  Guessing could potentially pick up $20+k...property is closing at $243k, so it's not a huge investment to begin with.

...or stick with original plan and clean it up a bit, with projected rents producing $700-900/month net income after pretty conservative numbers.  

I was looking for a cash flow property as I have a couple I'm holding for their equity positions...don't cash flow well and don't need to dump them right now for the cash.

Also, I'm in the military and out of the area, so doing management through family "partnership."  I'm sure it will work, but not without moments of relational stress.  I've been looking forward to learning by doing and getting involved in commercial...of course extended family is a bit more supportive of taking the money and running...to the next project.

I'm sure a bunch of you have run into this situation before.  Curious on your thoughts...

Thanks and have a blessed day!

@Randy E., Thanks again for the information.  Good feedback...especially billing name.  

Randy, Thanks for the response.  I wanted to go that way, but sometimes find it difficult to be "legalistic" and ensure it's run as a business.  Problem with being overly personal/personable during tenant "courtship."  It's not a friendship, it's business.  

I'll likely follow your input, as having it hit his pocketbook may also help to slow it constant requests for menial things going forward.  Thanks again.