Rubber Biscuit

I know there are a lot of experienced and knowledgable curlies on this board, so I thought I'd put this out there for a little bit of enlightening.

My boyfriend and I have an appointment tomorrow with a Real Estate agent to look at a commercial building on main street in our town. It *seems* like it would be a good investment, but you never know, so we are in the fact finding stage at this point.

It is actually two buildings. The first has a retail store on bottom and a 3 bedroom apartment on top. The second building in back has 3 studio apartments.

What I do know:
- The retail spot has a tenant who has been there for at least 3 years, if not longer.
- The apartment up top does not appear to have a tenant, but I'm not positive.
- No idea about occupancy for the studios, since they are not visible from the street.
- It has been on the market for less than a year.
- There are currently 9 buildings for sale on main street. This is the lowest priced one available.

So, I have the following questions I would like to ask the realtor.
- Based on a five year trend in NOI/Rent Rolls, how did the seller get to their number?
- When do the leases in place expire and what is the current market rent?
- Is there a property manager, if yes, what is their reputation? If no, is there a line item in expenses for property management?
- What is the going rate for property taxes? Has it been increasing?
- How old is the property and what major repairs have been done in the last five years? Condition, age, and type of roof and foundation.
- What has the vacancy rate been for the past 5 years (market and specific property?
- Why is the cap rate of this property lower than the cap rate of property X five blocks away?
- I would like to see the rent roll and the pro forma.
- Is the building on a ground lease?
- Why are the sellers selling?
- Why would this property be a good investment?
- What is it like dealing with the city? The tenants? The neighbors?
- What are the down payment requirements?

So, I want to know: What else should I be asking?

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Rubber Biscuit

So, we are in love with this place! The price had dropped recently and was just not updated on the website, which is a huge plus!

My bf's dad and mom came with us. His dad is a former contractor and from what he could see, the buildings are in sound condition and whatever repairs it needs, he can perform. They think we should go for it.

The realtor is really nice and knowledgable and patiently answered my litany of questions and filled in the gaps on questions I didn't even think of to ask.

So, we are moving on to the home inspection phase!

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- Seek first to understand, then to be understood.
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roseannadana

I saw this thread last night but it looked like you already had a good handle on what questions to ask.

From what you've said, I think you should go for it too. So, congratulations and keep us posted!

ETA: Post some pics!

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Rubber Biscuit

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- Seek first to understand, then to be understood.
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Like.Australia

I don't really know anything about the Caribbean, but I'd want to know what caused all the ceiling damage if the roof is in good shape. I'd also want to know if the electrical was/is effected by the apparent water damage and also if the older building's electrical and plumbing is up to current codes (no lead in pipes, etc.)

Rubber Biscuit

It's actually not water damage. According to my FIL, the support beams are too close the ceiling, and they probably used "salt sand" in the ceiling, which reacts to the iron of the support beams, and it caused it to crumble.

You're not looking at a regular ceiling (like you would see in the States), it's concrete bricks covered with a thin layer of more concrete.

We don't know if the electric/plumbing is up to code or not yet. There is an inspection clause where we can get a 100% refund if the building does not hold up to code.

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- Seek first to understand, then to be understood.
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spiderlashes5000

What did the inspection reports reveal?
Do you have a lot of cash on hand? Do you have access to commercial and/or rehab loans? What do the rent rolls look like? What are the answers to all the above questions? (Not saying you have to tell us but do you have all the info you need?)

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Rubber Biscuit

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__________________
- Seek first to understand, then to be understood.
- Character is how you treat those who can do nothing for you.

spiderlashes5000

How many units and what would the total rents be? Are taxes and insurance high? Are you saying there are three units (one commercial and two residential) and the $500 store front rent would be the highest? And al would need extensive renovations and some functional repairs?

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3b (with 3c tendencies) on modified CG

Rubber Biscuit

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- Seek first to understand, then to be understood.
- Character is how you treat those who can do nothing for you.

CurlyCanadian

I have absolutely nothing useful to add. Just wanted to say good luck...this seems like so much fun and I'm so excited for you guys! Hope it all works out well

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spiderlashes5000

Have you seen the condition of the other residential unit that gets $900/month?

What is the average monthly income in that city and what is the average rent?

IDK anything about income property in the Caribbean (i'm an investor in Ohio)...but I just don't feel you have enough info to make an informed decision. Personally, I would get a couple of quotes from contractors for complete renovations. And I would talk to some property managers or agents to get more concrete ideas of what you can expect in terms of retail and residential rents. You have a lot of good questions but you don't seem to have any answers. I would need to go in with solid comps so i coulmd run the numbers. You need to be able to project what your costs and revenues will be to say if what the seller is asking is a fair price.

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3b (with 3c tendencies) on modified CG

Rubber Biscuit

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- Seek first to understand, then to be understood.
- Character is how you treat those who can do nothing for you.

goldy

Where in PR are you? (if you don't mind me asking)

I second the idea of finding out insurance costs. I agree you need to try to work out initial costs, costs to maintain and income generated from the property to determine if it's a wise investment choice.

To me it looks like a very typical PR building in the residential (non-touristy) areas.

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Rubber Biscuit

As this is a public message board, and I have very private information up here, I will be deleting the contents of my posts here shortly.

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- Seek first to understand, then to be understood.
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spiderlashes5000

Sorry, I meant to write "many answers", not "any answers" LOL

I just meant that I would want to see you with a very concrete projected expenses.

You are willing to pay $145,000. But how much will you be paying after all repairs and renovations? Will it be $200,000?

You want to drop $200K cash on a property that doesn't have guaranteed income?

Why are you paying cash for this? Unless you have to shelter this money, why not finance 4 or 5 income properties w/ low interest commercial loans? (I, personally, would not want to tie up $200K on my first rental property!) You have no idea what you will encounter. And how easy will it be to nload this property if you find you don't like being a commecial landlord.

I would just feel better for you if you have a full expense sheet and a full projected profit and loss sheet. Show us everything you will have to pay for the next 24 months, from the day you close on the property: insurance, taxes, utilities, rehab (materials & labor), build out, marketing, commissions, security system, association fees, outstanding leins, contingenies, etc.

What is the current appraised value and what is the after repair value?

How much are you sure you can pull in rent/year and how long will it take to see a return on your investment? What is your second exit strategy? And how much cash do you have on hand? Do you already have some potential renters/tenants lined up?

I'm not trying to bust your chops over it...I'm just asking the same questions I would be asking myself if I were buying it.

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3b (with 3c tendencies) on modified CG

Rubber Biscuit

Spiderlashes, your knowledge is very helpful! It's what I needed to hear.

I know you're not busting my chops over it

It's a serious investment, and it's my first time in the rodeo. That's exactly why I went looking for help beyond my limited scope of family and friends. I don't have a clue! I'm just excited, is all.

Like I said earlier, I'm getting a little uneasy with all of my info out there, so I'm going to edit it out here shortly.

I'm still compiling lots of info. If I have anymore questions, can I pm you?

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- Seek first to understand, then to be understood.
- Character is how you treat those who can do nothing for you.

spiderlashes5000

Sure!

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3b (with 3c tendencies) on modified CG

rouquinne

spiderlashes, if i ever decide to get in to real estate investing, you're the guru!



good luck, RB!!!

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spiderlashes5000

LOL, thanks! I actually used to know someone in Ontario who does this full time w/ her husband. I wonder if I could still track her down...

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3b (with 3c tendencies) on modified CG