Interview with Jim Turano/Broker of Diverse Real Estate-Celebrating 40 years in the Business
TO DETERMINE VALUE WHEN CONSIDERING A 1031 EXCHANGE PROPERTY TO PURCHASE FOR INVESTMENT. QUEENS, NY
Is it better to purchase a 12-15 unit building that generates $200k income, with rent control, having over 40-55 people living in the building, and you paying all the expenses, and last but not least considering that if the building was built between 1935-1945 that the plumbing, heating, and roof maybe antiquated?
Always consider all opportunities. Here is an example to go over. If you came upon a Commercial Condo that has 13,100 sq.ft., with 6 parking spots, and one tenant only would you think this may be a consideration? A Community use building. One tenant a ‘SCHOOL’, that not only pays currently $17,000 dollars per month rent but pays the landlord an additional $40,000 toward expenses and taxes. With a total of $244,000 yearly income and having to pay a minimum of 12.9 x’s income, is this fair?
Here is another way to look at it. Buying Commercial Land of 13,100 sq.ft. today would cost you about $3,275,000 dollars. Now add the cost of building a 13,100 sq.ft. building at about $300 dollars per sq.ft. That equals $3,930,000 dollars. Combined Land building costs would equal about $7,205,000 dollars to have the same structure already built with a tenant already in place as described above, with a $3.4 million asking price.
Okay so the cap rate today would be just under 5%, however with increases in rent, and the schools willingness to sign a new lease in 5 years, at market value rent that puts your cap rate to 6.3% in 2023. PEACE OF MIND AND NO HEADACHES HAS A BIG VALUE!
MARKET VALUE RENT ESTIMATED FOR 2023 IS $20,000 DOLLARS RENT PER MONTH APPROXIMATELY OR EVEN HIGHER BY THEN.
For an Investor, having one tenant only, paying half the yearly expenses, with a past record of on time payments of rent, and an eagerness of extending their lease in 5 years to another 20 years, is a WIN WIN situation. And paying 12.9 x’s yearly income is indeed very fair.
EXAMPLE PROPERTY DISCUSSED:72-52 METROPOLITAN AVENUE, MIDDLE VILLAGE,NY- COMMERCIAL CONDO WITH SCHOOL AS TENANT. ASKING $3.4 MILLION. RENTS GO UP YEARLY, PROPERTY VALUE GOES UP, AND CAP RATE GOES UP