Worth it? Commercial property in an emerging historic downtown metro Atlanta area asking $550k, with current rental income of $2800/monthly.
Of course there's more to consider, but what these quick numbers, are you buying or passing? The area is emerging and lots of new construction single family homes in the mid 400s within walking distance to the property.
[{"id": "i8hp05i", "text": "I mean sounds ok as a 6% cap but missing a lot of variables", "replies": [{"id": "i8hu2xk", "text": "Agreed. That\u2019s a 6% cap if you assume a NNN structure. Could be different depending on variables", "replies": [{"id": "i8hx0dd", "text": "I did assume NNN but re-reading this property is most likely resi so probably a no-go at that size.", "replies": [{"id": "i8hykmm", "text": "Definitely a no go, OP explained retail and residential on top. Wouldn\u2019t play this property personally", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8hqvpq", "text": "What kind of property? What is your pro forma and not the listing brokers?", "replies": [{"id": "i8huajk", "text": "It's a retail with partial kitchen and grease trap on main level and then 2bed apartment upstairs. It's newly built. I think it could rent for much more than current rents with what I'd plan for, but also considering market projections that are all over the place now.", "replies": [{"id": "i8huxtz", "text": "Healthcare is where it\u2019s at right now", "replies": [{"id": "i8idufx", "text": "And industrial", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8hrqg7", "text": "Don\u2019t buy in downtown atlanta. Place is dead. Midtown or west midtown on the other hand\u2026", "replies": [], "depth": 1}, {"id": "i8hsxpc", "text": "I\u2019m definitely buying but first there\u2019s so much to consider. i.e cap rate (needs to be at least at a 7% or higher to be worth it when it comes to CRE), is $2800 the NOI (what are you pocketing after expenses)? etc. \n\nAlthough some experts are saying there most likely will be a crash in 2023, people are still buying up value add properties in opportunity zones. All of Atlanta is like 1 large opportunity zone. So long as the numbers make sense, buy the property, force the appreciation and hold it or sell it when the time is right. Best of luck.", "replies": [{"id": "i8htvuh", "text": "This.  Since it's residential it's probably before expenses.  What will the expenses be including property tax, insurance, and maintenance.\n\n&amp;#x200B;\n\ndeduct that from the monthly rent.\n\n&amp;#x200B;\n\nTake that number and multiply it by 12\n\n&amp;#x200B;\n\nIf that number is below like 5-6% your loan, assuming typical SFR leverage, will make it so you have zero cash flow.", "replies": [{"id": "i8i2zt3", "text": "super helpful math. thanks very much! it's true that not much cash flow coming from it now but the area is hot and might be worth the hold. but this is very helpful for consideration.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8hwxfu", "text": "Sounds attractive, especially mixed use. Here in Hawaii the price would be double and you'd have a line out the door for the residential portion. Tell us more. When you say *emerging historic district* do you mean even though there's a lot of new housing nearby at the moment the area is currently filled with homeless and drugs? Just how far has it emerged?", "replies": [{"id": "i8i2sof", "text": "Haha no it's actually a really clean Main Street district, has its own police force just for the 1.4 square mile city. it's emerging in that it once was thriving 30+ years ago and fell off. Now about half of the Main Street is occupied with cool trendy restaurants and the other half is vacant.", "replies": [{"id": "i8iv88t", "text": "Decatur?", "replies": [{"id": "i8jtr2j", "text": "Stone Mountain Village. The last underdog of the metro lol", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8j42uy", "text": "No. You don\u2019t value properties based on gross revenue cap rate like everyone else here saying it\u2019s a 6% cap rate. At a minimum, you need to assume a 40% expense ratio BEFORE mortgage, depreciation and income taxes. So if you have 2800 x 12 = $33,600 - 40% expenses = $20,160/ year net income before debt costs. That would be a 3.6% cap rate. I believe a mortgage on a property at that price range would gobble up the rest of that revenue. For me, I would want some free cash flow, so I wouldn\u2019t buy it unless you could prove much higher rents within 6 months to a year.", "replies": [{"id": "i8kexx1", "text": "Came to say this exact thing^", "replies": [], "depth": 2}, {"id": "i8v93ss", "text": "If 3.6 pct is too low, what number would make it a buy for you? 5? 6?", "replies": [{"id": "i8vf0hr", "text": "Cap rate is based on perceived risk. A \u201clow\u201d cap in say the 4-5% range need to be considered very safe, or an A Class property in a great location. A \u201chigh\u201d cap could be anything 7-10%+, but those usually mean it\u2019s either not in a primary or secondary market or are otherwise high risk. I\u2019d want to be able to exit this property at a 4% cap at full renovated condition, but purchase cap rate is so much more complicated when you consider cost of capital, expenses, and other properties as comparison. Personally, I only purchase cash flowing assets 6% cap or higher.", "replies": [{"id": "i8vh9ph", "text": "Thanks for your reply. My wife is a dentist and we are looking to expand her business and possibly purchase a building in the near future. I work in Finance(stocks), but don't have a background in commercial real estate. Any other key metrics we should be aware of?", "replies": [{"id": "i90r1cy", "text": "Congrats! Exciting plans to expand. Most important items are the location, and the bones such as foundation, roof, AC, windows, plumbing. If you plan to hold long term and your payment is reasonable you\u2019ll be in great shape.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i8kk25f", "text": "With a liberal 30% expense ratio this is a 4.27%", "replies": [], "depth": 1}, {"id": "i8kkcle", "text": "tenant leaves, how quickly can you replace and what does it take?", "replies": [], "depth": 1}, {"id": "i8kv4i9", "text": "I own many historic buildings.  Along with the already posted comments, consider the following:\n\n1. Age and condition of roof?  Type of roof (rubber membrane, PTO, metal, etc).  Last repair?\n2. Age of all mechanical systems: HVAC, water heater, etc.\n3. Condition of foundation.  Key in historic buildings.\n4. Is there a basement/crawlspace?  Water issues?  Condition of piping?\n\nProper detailed due diligence is key.  Confirm any/all deferred maintenance.", "replies": [], "depth": 1}]