Thread: Advice on an Income Property

Have you looked closely at the numbers? You need to make sure you understand what you'll be getting in to, so take a look at the costs involved in the purchase, and what that will cost you in repayments to finance. Then you need to look at what the rental income will be, what ongoing costs of the building will be (any local government / council rates, maintenance that is your responsibility etc), then see what's left $$$-wise. Do you plan to manage the property yourself or through a property management company? If the latter, what will that add to your costs. If the former, make sure you read up on and understand your responsibilities.

Originally Posted by Inphinity

Have you looked closely at the numbers? You need to make sure you understand what you'll be getting in to, so take a look at the costs involved in the purchase, and what that will cost you in repayments to finance. Then you need to look at what the rental income will be, what ongoing costs of the building will be (any local government / council rates, maintenance that is your responsibility etc), then see what's left $$$-wise. Do you plan to manage the property yourself or through a property management company? If the latter, what will that add to your costs. If the former, make sure you read up on and understand your responsibilities.

Hey, thanks for the reply. I've carefully examined the numbers and have accounted for the all of the costs, including 2 mortgages (one for down-payment and a main mortgage), utilities, CAM, insurance, and taxes. The property is profitable, and there are some nice escalator lease agreements in place. Depending on the rates I could secure and the purchase price I could negotiate, the profit would be between 2k and 5k monthly with the current rent roll. Asking price is 1.8m, the property is assessed at 1.5 - my offer would be somewhere in the middle.

I would manage the property myself at first and as I built equity and cash flow I would consider bringing on a property manager. I have a close relatives who are contractors, so I think that would definitely be helpful in regards to repairs, improvements and whatnot.

Do you think this is enough cash flow? The building is in good shape with many recent improvements, so I wouldn't expect anything catastrophic to go wrong - but if something did go wrong and there were pricey repairs involved it could be ugly.

How difficult is it to secure financing on a proven income producing property? Would I be better off securing and using a line of credit for the down payment or would a second mortgage be the way to go?

Thanks again for any advice.

What is the gross rental income from each tenant?
When are the leases due for each tenant?

Speaking for myself, for an asking price of $1.8M I would need to see at least $30k a month in gross rent. Otherwise it wouldn't make any sense for me.

There are 26 units, most of the office tenants are "tenants at will" with no lease expiration and have been there for years, the retail & restaurant tenants have 3-5 year leases with options and yearly CPI increases - most leases are expiring between 2012 and 2015.

The gross monthly rent at the current occupancy is $23k. Potential if fully occupied would be just a bit higher at $25K (there are only 3 vacant offices). There is also about 2000 sq ft currently not being used that could be renovated and rented.

Thanks for the advice, it's greatly appreciated.