I know about some new commercial condos currently being built. They just went on the market for sale a few months ago and are apparently selling fast. They are new to a rapidly developing area with limited commercial real estate currently available. I am thinking of purchasing a small unit and renting it out and then reselling as soon as I can make a good profit. I do not have a prospective tenant but the broker says he could help me find one in 1-3 months. Does this sound like a good deal to you?
A deal is only as good as the numbers. How much is this property? Market rents for similar in your area? Etc…
It’s $380,000. Could rent it for $1.50 psf, which is on the high end, but enough to cover monthly payments for loan. Other places go for about $1 psf.
Monthly payments for the loan aren’t anywhere close to the real total for expenses you may incur. Be sure you have an accurate picture of the total expenses before buying into this.
Also, if other places are $1/sqft what makes you think you can get $1.50?
Thanks for the good advice. The broker says it should rent for at least $1.35. Guess he thinks I could get this with the place being brand new and there being little available for rent or lease. Can you tell me some of the expenses I should expect for the first few months besides property management? I am thinking it might be worth the expenses if I can resell within a year for a good profit since commercial here is HOT right now.
As others have suggested, you need to evaluate this from a cash flow standpoint.
Other monthly expenses that you should consider when determining the net income potential of a property are:
-Vacancy and Collection Losses
- Trash Pickup/Cleaning Services
- Utilities
- Management Fees
- Advertising and Promotion (to rent the place)
- Maintenance and Repairs
- Property Taxes
- Property and Liability Insurance
- Debt Service (mortgage repayment)
There might be expenses not listed that are specific to the property, but this should give you a give point of reference.
If you are suggesting that you could rent out the unit (with an admitted high side cost per sq ft) and breakeven on the mortgage payment only will result in a negative monthly cash flow.
This deal could still be viable if:
- You anticipate a substantial/short term increase in value (take the short term pain to long term gain approach; overall property appreciation must be greater then your total YTD cash flow losses for this to make sense).
- Improve the cash flow by securing a lower cost of borrowing (better interest rate) or increasing your down payment.
Regards,