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Looking for a bit of advice on Manitoba Revenue Property

D

drbigb

0
REIN Member
Joined
Nov 9, 2009
Messages
16
I am wondering if anybody here as any experience in the Manitoba market. I am looking at a 4plex that is fully rented and by the looks of things the tenants will probably never move out. With Manitoba`s rent controls allowing on average just under a 2% increase per year the current rent being collected is about $4-450 below what a new place will earn. The owner is asking about $360,000.00 The property taxes are $5,000.00. The water bill is $1,650.00 for the year. The rest of the utilities are paid for by the tenants. The current rent being collected for the 4 suites is $2,662.00 per month. The following is the way I analyze it using my LOC for the 20% down payment.

2262 - income

1010 - mortgage variable at 2.3% or 1245 locked at 3.74%
197 - interest on LOC at 3.25%
417 - property taxes
137 - water bill
159 - management fees at 6%
200 - initial reserve fund for 12 months then reduced to 100
100 - maintenance
100 - insurance
________________
342 - positive cash flow or 107 at locked rate

Am I missing anything and do you that have experience recommend I go with a fixed or variable interest rate? Also does anyone have experience with increasing the rent above the Manitoba guidelines? Looking for a little bit of advice.
 
QUOTE (drbigb @ Nov 21 2009, 04:43 PM) I am wondering if anybody here as any experience in the Manitoba market. I am looking at a 4plex that is fully rented and by the looks of things the tenants will probably never move out. With Manitoba`s rent controls allowing on average just under a 2% increase per year the current rent being collected is about $4-450 below what a new place will earn. The owner is asking about $360,000.00 The property taxes are $5,000.00. The water bill is $1,650.00 for the year. The rest of the utilities are paid for by the tenants. The current rent being collected for the 4 suites is $2,662.00 per month. The following is the way I analyze it using my LOC for the 20% down payment.

2262 - income

1010 - mortgage variable at 2.3% or 1245 locked at 3.74%
197 - interest on LOC at 3.25%
417 - property taxes
137 - water bill
159 - management fees at 6%
200 - initial reserve fund for 12 months then reduced to 100
100 - maintenance
100 - insurance
________________
342 - positive cash flow or 107 at locked rate

Am I missing anything and do you that have experience recommend I go with a fixed or variable interest rate? Also does anyone have experience with increasing the rent above the Manitoba guidelines? Looking for a little bit of advice.
Personally, I wouldn`t touch it at those rents.  If it was a threeplex, you could at least set new rents when they move out.  At a four plex and above, you can only set the rent at the average of all the other suites.  You can go to a reno scheme if they voluntarily move out, but then you are spending another 5-10K in renos.  Cashflow is almost nonexistent at a low variable rate and would dry up with any increases of prime.  I`d hold out for something better.
 
QUOTE (drbigb @ Nov 21 2009, 04:43 PM) I am wondering if anybody here as any experience in the Manitoba market. I am looking at a 4plex that is fully rented and by the looks of things the tenants will probably never move out. With Manitoba`s rent controls allowing on average just under a 2% increase per year the current rent being collected is about $4-450 below what a new place will earn. The owner is asking about $360,000.00 The property taxes are $5,000.00. The water bill is $1,650.00 for the year. The rest of the utilities are paid for by the tenants. The current rent being collected for the 4 suites is $2,662.00 per month. The following is the way I analyze it using my LOC for the 20% down payment.

2262 - income

1010 - mortgage variable at 2.3% or 1245 locked at 3.74%
197 - interest on LOC at 3.25%
417 - property taxes
137 - water bill
159 - management fees at 6%
200 - initial reserve fund for 12 months then reduced to 100
100 - maintenance
100 - insurance
________________
342 - positive cash flow or 107 at locked rate

Am I missing anything and do you that have experience recommend I go with a fixed or variable interest rate? Also does anyone have experience with increasing the rent above the Manitoba guidelines? Looking for a little bit of advice.

Hi, at first glance I see that you have no vacancy allowance and even though you think no one will move out, a vacancy allowance is always required in your projections (appraisal includes some automatically) so you should factor that in because you will have a tenant that moves voluntarily or maybe not so voluntarily.

Your maintenance is also too low, should be at least double, but you do have a reserve fund so that`s good.

Finally, the only way to increase rents in Manitoba above the rent control guideline is to apply for a rehabilitation scheme on a single unit or on the entire complex. This requires you to spend a minimum amount of $$ on improvements that result in an improvement in living conditions. These are not just cosmetic improvements either.

Upon approval you will receive a waiver letter that allows the units to be exempt from rent control for a specified time period (1 - 5 years) You can then increase rents to whatever the market will bear.

Hopefully its in a decent area as well, but $85,000 - $90,000/door is too much...price has to come down !
 
QUOTE (jeffjas @ Nov 21 2009, 06:21 PM) Hi, at first glance I see that you have no vacancy allowance and even though you think no one will move out, a vacancy allowance is always required in your projections (appraisal includes some automatically) so you should factor that in because you will have a tenant that moves voluntarily or maybe not so voluntarily.

Your maintenance is also too low, should be at least double, but you do have a reserve fund so that`s good.

Finally, the only way to increase rents in Manitoba above the rent control guideline is to apply for a rehabilitation scheme on a single unit or on the entire complex. This requires you to spend a minimum amount of $ on improvements that result in an improvement in living conditions. These are not just cosmetic improvements either.

Upon approval you will receive a waiver letter that allows the units to be exempt from rent control for a specified time period (1 - 5 years) You can then increase rents to whatever the market will bear.

Hopefully its in a decent area as well, but $85,000 - $90,000/door is too much...price has to come down !

Thank you for the responses.
 
QUOTE (drbigb @ Nov 21 2009, 03:43 PM) ...The owner is asking about $360,000.00 ...The current rent being collected for the 4 suites is $2,662.00 per month. ..
Advice: you overpay GROSSLY ! maybe $200,000 for that rent roll !

Your expenses are too low:

use a vacancy allowance of 5-10%
management fee on a 4 plex is 10-12%
R&M on an older apartment building is $500 to $1000/suite/year unless in pristine condition ..

Unless you can get vacant possession, have a way to raise rents SIGNIFICANTLY or can replace tenants, it is a high risk low to no return strategy !

Analyze the deal with realistic expense figures and a 6% mortgage .. and you will see what I mean !

Keep looking ..
 
QUOTE (ThomasBeyer @ Nov 22 2009, 09:33 AM) Advice: you overpay GROSSLY ! maybe $200,000 for that rent roll !

Your expenses are too low:

use a vacancy allowance of 5-10%
management fee on a 4 plex is 10-12%
R&M on an older apartment building is $500 to $1000/suite/year unless in pristine condition ..

Unless you can get vacant possession, have a way to raise rents SIGNIFICANTLY or can replace tenants, it is a high risk low to no return strategy !

Analyze the deal with realistic expense figures and a 6% mortgage .. and you will see what I mean !

Keep looking ..

Ok Thanks again. I Have posted some pics of the place. http://reinonbrad.shawwebspace.ca/blog/pos...itoba_property/ It is about 10 years old. I`ll go see it if the numbers work. From what I`m hearing it should look more like the following with the understanding that I can`t increase the rent this year because the increase has already taken place. For next year the guideline is 1%.

$2662 revenue

$615 mortgage payment $177000 mortgage at 2.3% would increase to $1010 mortgage payment at 6%
$119 LOC interest on $44000 at 3.25% would increase to $256 at 7%
$417 taxes
$137 water
$159 management as quoted by current property manager at 6% of revenue
$200 reserve
$200 maintenance
$200 vacancy

$615 positive cash flow
Cash flow reduced to $83 if rates rise to 6%

These numbers equate to a selling price of $221000. Is this what I should be looking for? How should I structure my offer so that the existing owner will be inclined to accept it? OK I accept that I`ll likely have to move on to the next property and leave this one. I`m looking for my first property and trying very hard not to let my emotions get the better of me.
 
QUOTE (drbigb @ Nov 22 2009, 11:17 AM) ..How should I structure my offer so that the existing owner will be inclined to accept it?
not all properties will be sold at prices you deem acceptable !

in fact, most are not .. thus: write many offers / move along quickly to the next one ..
 
QUOTE (drbigb @ Nov 22 2009, 01:17 PM) I`m looking for my first property and trying very hard not to let my emotions get the better of me.

Don`t even consider buying your first property until you are certain you have no emotions sabotaging your path to success.
Emotions and money never mix. It`s all about numbers. It`s only about numbers when it comes to the deal.

There is a good TV show called "Dragons Den" that should be a must have teaching aid new investors should study before attempting there first deal. The 5 dragons know what success is and how to achieve it.
 
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