I see a lot of people that are looking for deals quoting prices and info off Loopnet. Let me just say caveat emptor (let the buyer beware) on this. I am just browsing through now and some of the stuff I see just makes me shake my head. If I didn’t know better looking at these ads I would think I found some real GOLDMINES. You gotta be careful, these brokers will fleece you bigtime. Let me walk you through one example.
Cap rate listed is 14%, sure I am not in California so I do see better than 3 caps listed around here. But 14%? I don’t go to Loopnet often but I remember seeing this listed at least 3 months ago. Wouldn’t a 14 cap in any market fly off at lightning speed? Heck I don’t know about your area but around me this would be a pocket listing that the broker would pimp out to his friends long before he ever considered making it public.
Next red flag is the net operating income. The unit breakdown is as follows:
Barbershop: $1250/month
Deli: $650/month
Garage: $1500/month
3bdr apt: $1100/month
5 bdr apt: $1250/month
$5750/mo gross x 12 = $69k gross annual
Owner claims NOI of $58,748.
$10k in expenses for a WHOLE YEAR? 14.9% expenses? Maybe retail space is a little better than residential, 30% at best, but less than 15%? If retail is 30% expenses (and I think I’m being kind here) and residential is 50% on average that’s a blended figure of 38%. According to my rough estimate shouldn’t we see a expense figure of something like $26,220/yr making a more realistic NOI of $42,780.
With a price tag of $429,900 is this a deal with a NOI of $42,780? Also, I should note that this area its in isn’t one of those places that stores would jump at a opening to get into. If one of those commerical spaces goes vacant it’s probably going to stay that way for a year plus.
All I’m say is THINK ABOUT WHAT YOU’RE BEING FED on Loopnet.
Nice, I’ve been looking for that unicorn forever. I’ve always wanted a place with a NOI that’s actually higher than the gross. Did I mention that even with a calculator REALTORS CAN’T DO SIMPLE MATH?
Did I mention that even with a calculator REALTORS CAN’T DO SIMPLE MATH?
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Does that mean your brain will fall out next month after you take your test? Don’t worry RICH, when you’re a Realtor we will help you re-learn basic calculator skills.
Trust me, most of the people in my class CANNOT do math…I think I’m the only one that can. It’s hilarious. Simple crap like figuring out commissions, taxes, etc might as well be complex equations. Sure some of them get harder with things like complex commission splits but it’s not rocket science. I can’t wait to see what they do when its time to figure out cap rates…that ought to be fun.
Ps- I got a 650 on my SAT math so I’m not completely math challanged.
The idea that ALL motivated sellers are selling there properties in some underground selling market isn’t accurate. A good amount of deals or potential deals DO sell their properties on the MLS, loopnet, etc. The price may not be right (never is), but close enough to put a lower bid down.
One of my favorite ways to buy SFH is to go out and look at 12-15 SFH in one day. These are properties with potential that I find on the internet. Then I will bid on maybe 8 of them. All my bids will be very low. Typically 6 will flat reject, and two will counter. I then counter back and forth until an agreement is made or not made.
Sometimes the impression is given that the average Joe can’t find deals because they aren’t part of this secret society that has all the good deals. Not true. The internet can be very useful when looking for 1-4 unit properties.
[slightly off topic rant]
Just the other day, I was in the supermarket and decided to make homemade pizza for dinner. I went to the deli section and asked for a 1/4 pound of pepperoni. The young man behind the counter looked at me and said, “I’m new here, how much is a 1/4 pound?” Shaking my head I answered, “.25”.
Last week I was teaching my computer science class:
Me: Click on File/Page Setup and change your margins to 1-1/2 inches.
Student: Mr. Tg, there is no 1/2 inch.
Me: Change your margins to 1.5 inches.
:banghead
[/end of rant]
