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Discussion Starter #1
I would like to know if it is realistic to find a good investment property in today's market by putting a down payment that consists only from HELOC, which in my case around 60-80K AND expect a positive cash flow from that property that would cover not only my 2nd mortgage but also the HELOC payment. In other words with no cash out of my pockets to be able to invest in a positive cash flow property without major renovations.

I am currently working with RE agent who scans properties for me but the only positive cash flow are the ones that come from duplexes/triplexes with a commerce inside of them, whether it is a laundromat, a convenience store or something else.

I have considered to purchase one of those commercial/residential properties which is laundromat on the 1st floor and 6 and half apt on the 2nd, but for my 1st investment I find it a little bit scary. With no experience in the laundromat business and lack of time due to my current work I am hesitant to venture into this even if according to financial stats the declared revenues are around 80K each year with expenses around 30K, adding to the expenses my 2nd mortgage and HELOC down payment (20K + 7K= 27K) my net revenu would be around 23K (80-30-27) and that is IF I have noone working there whom I'd have to pay salary, otherwise I am 17K negative because the current clerk gets around 40K a year in salary.

Considering all this, is it even worth the hassle ? Initially, I was thinking to invest in residential property, so if any experienced real investors out there who could give me an advice as to how do you get started in today's market ? What is the best option ? I heard somewhere that 50% of good investment properties don't even hit the market, so how do you find them ???
 

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Envision,

Are you in Toronto or somewhere else?

All things considered commercial mixed properties are the most reasonably priced.

I would not invest in a laundromat. Utilities are going through the roof and appliances are commodity items now. You can go to Home Depot and buy a brand new dryer for $300 tax in. A high efficiency Samsung could be had this spring for $800. All the new condos have washer dryer units ensuite and buildings do too. This leaves few customers for you.

My feeling is that you will have to change the use of this space. That may involve a period of vacancy and lots of dough. You will also have to sell off
the chattels in the store.

Commercial mixed space is 30% down. That means the most expensive place you can buy with $80K is $320,000 or less because of closing costs, environmental assesments etc.

I'm convinced you don't want to get into the laundry business or the restaurant business. You own the building that's your business, providing housing for businesses and tenants.

You also need to allow for property management, maintenance and vacancy expenses. In Toronto that runs about 22% of the gross. This is your security blanket. Without that you are digging into your pocket every time a tenant moves and you have to paint or the suite stays empty. You will not like this.

Even if you are doing the property management yourself, pay yourself for it. You don't work for free.

You might also want to look at my most excellent post on this subject at Million Dollar Journey

http://www.milliondollarjourney.com/landlord-math-cap-rate-and-return-on-investment.htm

I also have the spreadsheet but alas... my Hackintosh broke because I updated the software without consulting my better half :)

I am sharing the computer with him which is why I haven't been over in a while. Anyone who wants this spreadsheet can just pm me your email and you will get a copy, when I get my computer up and running.
 

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Discussion Starter #6
Thanks for reply and for the links provided. I am located in Montreal.

As for investing in laundromat, initially I thought the same way. Appliances are very affordable for most and many new condos and apt buildings have space for them. But there's another side to it. This laundromat is located in the area where there are no new condos or buildings and it has been there for the last 25 years. So it has it's clientele. This is the area of duplexes/triplexes which are quiet old and probably don't have the space provided for washers/dryers, so even if they could afford to buy those appliance there will be nowhere to install them. Also, I discovered that most of the income comes from contracts with restaurants, schools and factories for washing uniforms etc. Anyways, if a seller provides financial stats that prove what is his income this shouldn't be a concern whether this business is a profitable one or not. By the way, according to my calculations the cap rate is at 15% Is it a norm for commercial mixed space to be so profitable ? Shouldn't this be a no brainer to purchase right away?
Like I said my main concern is with my time management. Since I don't want to quit to my current job (7am-3pm) and the laundromat is open (8am-8pm), the only solution I see in order to avoid paying someone esle a salary that would eat up my profit is to shorten the opening hours ex. (03pm-8pm) and be open on the weekends when the are definitly more clients. But then I would have no free time at all...
I am not quiet sure why did you say that owning a building that's my business is such a bad thing ? Having 50K a year in income without quitting my primary job is a pretty good salary for beginning, don't you think ?
 

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First of all I need your email to email you a spreadsheet.

Something is wrong. Some one is lying to you. This seems too good to be true and is cause for alarm.

Reducing the hours will reduce your income. Is this a currently working laundromat? Contracts with restaurants, schools etc means you will have to be open when they want to drop stuff off and pick it up.

There are also environmental concerns with the chemical used for dry cleaning if dry cleaning was ever done on site you will need a environmental assessment.

The first thing you need to figure out is who is lying and why. Why would someone sell you a 15 cap building? Ask for copies of all the expenses for everything. You can also ask the local utilities.

I very much doubt that laundromats are a going concern. There are hardly any left and it's been about 5 years since I saw a new one open. I would hang out there and see how many customers they have.

Do look a gift horse in the mouth.
 

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Is your principal residence completely paid off?

Just trying to figure out how leveraged you would potentially be.
 

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"Initially, I was thinking to invest in residential property, so if any experienced real investors out there who could give me an advice as to how do you get started in today's market ?

Win the lottery? Realestate is the rich mans game.

But on a more positive note, i've heard that 80k could buy a piece of vacant land near a major USA city and in 5 years you will get 3x your money back. But why love realestate so much?
 

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Discussion Starter #10 (Edited)
@ cal - My principal residence is NOT paid off. If you look at my 1st post I explained that I have a HELOC of 60-80K. So I have about 109K left in my principal residence. So by buying this property I would be adding another 2 mortgages, one which is HELOC (downpayment) and the 2nd mortgage on the laundromat itself. So 27K in mortgages and 30K in expenses comparing to 80K in income leaves me with 23K net income per year.

@ berubeland - Yes it is a currently working laundromat. I was just there a few weeks ago and there was a young girl (attendant) who told me that most of people come on weekends and she even showed me the list of conracts they had with companies who they have business with. (I did notice that the place was empty all 20 mins I was there) She's not related to the seller, but she told me that reason for sale could be that the owner is going though chimotherapy and has other business as well so he has no time anymore or desire to keep it. They don't do dry cleaning on site, but somewhere else, but they do provide this business. Obviously we'll ask for copies of everything, but if all is true I guess should I buy. Only time will tell.

@ chaudi - I don't think that people who now have 10-20 rental properties were very rich in the beginning, we all need to start somewhere.
 

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I would like to know if it is realistic to find a good investment property in today's market by putting a down payment that consists only from HELOC, which in my case around 60-80K AND expect a positive cash flow from that property that would cover not only my 2nd mortgage but also the HELOC payment. In other words with no cash out of my pockets to be able to invest in a positive cash flow property without major renovations.

With no experience in the laundromat business and lack of time due to my current work I am hesitant to venture into this even if according to financial stats the declared revenues are around 80K each year with expenses around 30K, adding to the expenses my 2nd mortgage and HELOC down payment (20K + 7K= 27K) my net revenu would be around 23K (80-30-27) and that is IF I have noone working there whom I'd have to pay salary, otherwise I am 17K negative because the current clerk gets around 40K a year in salary.
This is how I have it thus far.

You owe 109K on principal res. (Keeping day job to pay for this)
You would get a HELOC 60-80K for downpayment on investment prop.

Rental prop provides 80K revenue, minus 30K expenses, minus another 40K if you don't want to quit your day job. Minus 20K to finance the 2nd mortgage, and 7K to finance the HELOC. Total 17K debt per year to carry the investment property.

'If you look at my 1st post I explained that I have a HELOC of 60-80K. So I have about 109K left in my principal residence. '

Nothing in your first post mentioned how much was owing on the principal res., or the appraised value of your home to obtain a HELOC.

I think it basically comes down to this.

Do you earn more than 40K? If no, then maybe it is better to pay yourself to work at the laundromat.

If yes. Do you want to spend all of your time at the laundromat when not at work, so that your employee expenses are only 23K instead of 40K, allowing your to break even.

Me. I prefer to buy properties that can pay for themselves. This one does not fit that criteria.
 

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Discussion Starter #13
@ cal - You're absolutely right about everything. This is my main concern right now - do I really want to spend all my free time there? One part of me tells me that we have to make sacrifices if we want to make money, the other makes me wonder how much time will pass by before I get fed up with this "lifestyle". I do earn around 50K a year. So by working at laundromat from 3pm to 8pm I would be getting an additional 23K, which isn't so bad for a second job CONSIDERING
1. I didnt put anything from my pocket
2. Possible appreciation
3. Equity build up
4. Tax advantages
5. According to some laundromat owners sky is the limit when it comes to looking for conracts with business that require washing.
6. Lets hope that the declared income is not everything a guy makes...
 

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I agree with statements 1, 3, 4(which is a great benefit, and is probably generally underestimated.

Statement 2, probably not the best time in the market to get a great short term return.

And as for 5, it might be best to simply has someone lease and operate the business space from you, the landlord.

Ulitmately, there will be other opportunities that present themselves, that will be easier to be cash flow positive. If you have to sacrifice everything to make it work, you went wrong in the selection process.

Edit: Assuming the same purchase price and numbers.
 
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