正文
Now is the time to summarize the project.
The building is in a small town in Alberta. It is one and a half hours drive east of Calgary, with a population of 13,000, I will call it Btown. The Alberta economy is based on two big factors: oil&gas, and cattle. Btown is a typical Albertan town, with a big gas reserve right beneath its ground. There is a big slaughter house just 10 minutes out of town, with 2,500 workers. It is the biggest employer in town and it provides one-third of beef used in Canada. There are many people working for the oil and gas companies serving gas well and oil rigs. There is not a lot of hype in town in real estate, it has always been stable. People have to eat beef no matter what, right?
1) Building. The building has 12 units: 11 two-bedroom units and 1 one-bedroom unit. The rent for the one-bedroom unit was $675. The rent for the two bedroom units rangs from $795 to $900. Total rent was $9,760 per month. The seller asked $960,000. After the negotion process, it was agreed the purchase price was $920,000. When doing the inspection, the inspector said the roof was leaking, and the balconies need repair too. I asked the vendor to take $50,000 off the agreed price or he can repair the roof and the balconies. He agreed to take $30,000 off so the final purchase price was $890,000. The purchase was completed on May 31.
2) Down Payment. The bank asked that we put down a 25% down payment. The down payment was obtained by etting a line of credit on an existing property(it is the first project I purchased), at a commercial line of credit of 6.75%(prime rate plus 0.75%). We take a line of credit of $300,000. The purchase would need $230,000, the rest would be reserved for fixing the roof and balconies, and reserve fund. Because we are not paying pricincal on this, the monthly payment of interest would be $1,293.75.
3) Mortgage. The bank gave a mortgage of $675,000, based on 75% of $900,000, which is the appraisal value done in January, 2007. The rate is prime rate plus 0.75 of a percent, which comes to 6.75%. The bank would charge half a percent of the loan as their fee, and the monthly payment is $5,134.89.
4) Partners. Two friends of mine, a Caucasian couple, are my partners on this project. They are putting with 30% of the down payment, which is $90,000. As a result, they will have 30% on the title. Because they are not managing the building and do not want to touch anything other than the down payment, they agree to give up 30% of their share of future profit, so their share of the profit will be 21% instead of 30%. I have known them for many years and they are my partners on my first project, too.
5) Property Manager. When I flew to Btown to view the building, I met with the caretaker of the seller. I was quite impressed with her and decided to keep her as my property manager. But for reasons unknown to me, she was no longer with the seller when I took over and I could not get in touch with her. The seller had another girl as the caretaker, but I decided not to take her because I sensed there was quite a bit of turnover of their staff. I did not know her so for me it was equal to finding a new person anyway. I got a recommendation from a realtor in town so I talked to the person on the phone and decided to hire him. His name is Jack, he is managing some units for other people and he seems to know what he is doing. Unfortunately Jack is not licensed and he is not good at doing paperwork, he is from old school. I have to educate him doing paperwork one step a time. I am not sure how he dealt with other owners. I am paying Jack $30 per unit per month, so he is making $360 per month from this building.
6) Calculations.
Net Cash Flow = $113,664 - $115,814 = (-$2,150)
There is $16,000 principal payment in the mortgage, so the real net cash flow is $16,000 - $2,150 = $13,850.
7) Rent Increase. The property manager told me he has sent notices for rent adjustment. He is increasing all two-bedroom units to $875 except the two units that already have $900. He is also going to rent the one-bedroom unit for $800 which became vacant when I took over. The notice will take three months to be in effect, which will raise the total rent by $8,151 per year.
8) Roof. Property manager had roofing people inspected the roof again and the result is that the roof is just fine and need no repairing: it leaked before and was repaired and sealed. That is a big repair item and I feel much relieved.
9) Balconies. Balconies needs to be repaired(old wood needs to be taken out) and painted. There are eight balconies and it is going to cost probably a thousand dollars each or more, for about $10,000.
10) Who made money from this purchase.
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Summary: Overall I am satisfied with the building. The market is in stable and growth condition. The rent covers all the expenses. I was thinking about selling right after purchase but now I changed my mind and would like to hold for a while, at least until next year. I need several months to smoothe the operation and it seems to go in that direction.
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The building is in a small town in Alberta. It is one and a half hours drive east of Calgary, with a population of 13,000, I will call it Btown. The Alberta economy is based on two big factors: oil&gas, and cattle. Btown is a typical Albertan town, with a big gas reserve right beneath its ground. There is a big slaughter house just 10 minutes out of town, with 2,500 workers. It is the biggest employer in town and it provides one-third of beef used in Canada. There are many people working for the oil and gas companies serving gas well and oil rigs. There is not a lot of hype in town in real estate, it has always been stable. People have to eat beef no matter what, right?
1) Building. The building has 12 units: 11 two-bedroom units and 1 one-bedroom unit. The rent for the one-bedroom unit was $675. The rent for the two bedroom units rangs from $795 to $900. Total rent was $9,760 per month. The seller asked $960,000. After the negotion process, it was agreed the purchase price was $920,000. When doing the inspection, the inspector said the roof was leaking, and the balconies need repair too. I asked the vendor to take $50,000 off the agreed price or he can repair the roof and the balconies. He agreed to take $30,000 off so the final purchase price was $890,000. The purchase was completed on May 31.
2) Down Payment. The bank asked that we put down a 25% down payment. The down payment was obtained by etting a line of credit on an existing property(it is the first project I purchased), at a commercial line of credit of 6.75%(prime rate plus 0.75%). We take a line of credit of $300,000. The purchase would need $230,000, the rest would be reserved for fixing the roof and balconies, and reserve fund. Because we are not paying pricincal on this, the monthly payment of interest would be $1,293.75.
3) Mortgage. The bank gave a mortgage of $675,000, based on 75% of $900,000, which is the appraisal value done in January, 2007. The rate is prime rate plus 0.75 of a percent, which comes to 6.75%. The bank would charge half a percent of the loan as their fee, and the monthly payment is $5,134.89.
4) Partners. Two friends of mine, a Caucasian couple, are my partners on this project. They are putting with 30% of the down payment, which is $90,000. As a result, they will have 30% on the title. Because they are not managing the building and do not want to touch anything other than the down payment, they agree to give up 30% of their share of future profit, so their share of the profit will be 21% instead of 30%. I have known them for many years and they are my partners on my first project, too.
5) Property Manager. When I flew to Btown to view the building, I met with the caretaker of the seller. I was quite impressed with her and decided to keep her as my property manager. But for reasons unknown to me, she was no longer with the seller when I took over and I could not get in touch with her. The seller had another girl as the caretaker, but I decided not to take her because I sensed there was quite a bit of turnover of their staff. I did not know her so for me it was equal to finding a new person anyway. I got a recommendation from a realtor in town so I talked to the person on the phone and decided to hire him. His name is Jack, he is managing some units for other people and he seems to know what he is doing. Unfortunately Jack is not licensed and he is not good at doing paperwork, he is from old school. I have to educate him doing paperwork one step a time. I am not sure how he dealt with other owners. I am paying Jack $30 per unit per month, so he is making $360 per month from this building.
6) Calculations.
| Revenue | |
| Gross Rent | $117,120 |
| Vacancy (5%) | ($5,856) |
| Laundry Income | $2,400 |
| Net Revenue | $113,664 |
| Expenses | |
| Mortgage(including $16,000 principal) | $77,144 |
| Insurance | $2,580 |
| Property Management | $4,580 |
| Property Tax | $7,800 |
| Utilities | $16,510 |
| Maintenance($50 per unit per month) | $7,200 |
| Total Costs | $115,814 |
Net Cash Flow = $113,664 - $115,814 = (-$2,150)
There is $16,000 principal payment in the mortgage, so the real net cash flow is $16,000 - $2,150 = $13,850.
7) Rent Increase. The property manager told me he has sent notices for rent adjustment. He is increasing all two-bedroom units to $875 except the two units that already have $900. He is also going to rent the one-bedroom unit for $800 which became vacant when I took over. The notice will take three months to be in effect, which will raise the total rent by $8,151 per year.
8) Roof. Property manager had roofing people inspected the roof again and the result is that the roof is just fine and need no repairing: it leaked before and was repaired and sealed. That is a big repair item and I feel much relieved.
9) Balconies. Balconies needs to be repaired(old wood needs to be taken out) and painted. There are eight balconies and it is going to cost probably a thousand dollars each or more, for about $10,000.
10) Who made money from this purchase.
| Bank One for Down Payment | Interest plus 0.5% fee |
| Bank Two for Mortgage | Interest plus 0.5% fee |
| Realtor | Commission |
| Lawyers | Fees |
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Summary: Overall I am satisfied with the building. The market is in stable and growth condition. The rent covers all the expenses. I was thinking about selling right after purchase but now I changed my mind and would like to hold for a while, at least until next year. I need several months to smoothe the operation and it seems to go in that direction.
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