Found an 8 Plex, Owner Financing... is this a good deal?

Purchase price 500,000

NOI 48,000

Cap Rate 9.6

20% down = initial investment 100000

80% loan amount/debt svc 400000

Debt service monthly payment $2,147.29

Yearly debt svc payment $25,767.44

Yearly Cash after debt service CADS 22,232.56

Monthly Cash after debt service $1,852.71

Debt svc coverage ratio DSCR 1.86281617

Cash return on investment CROI 22.23%

There is NO maintenance needed and the property has EXCELLENT tenants...

However, the owner sucks at Keeping solid records and has run the building 100% on his own for 20 years.

Any ideas about finding the 100,000 Investment?

I was thinking about putting it under contract and wholesaling with the owners knowledge that I don't have a buyer lined up yet.

Jeremy Silva

Real Estate Investor · montrose, Colorado

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Jan 21 '11, 11:06 AM

I've made a decision.

Any input would still be appreciated.

I decided that because this is outside my primary focus in Real Estate, I will not spend to much time with it.

Instead, I intend to negotiate the best seller financing terms that I can, and put it under contract with the intent to wholesale or assign my contract. Meeting with the seller on Tuesday, January 25th 2011

The seller seems open to this.

well.... On to the next deal.

I'll post a response if I get it sold

Tom K

Real Estate Investor · Mountain View, California

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Jan 21 '11, 01:31 PM

It's not the down payment that's the main issue; it's the fact that this is not a deal at all. You'd be lucky to find any investor that would want to touch this wholesale opportunity.

Among the expenses you didn't factor in:
o Property taxes
o Insurance
o Vacancies
o Evictions
o Maintenance (there's no such thing as maintenance free property)
o Property management (if used)
o Utility estimate seems low if you're paying everything
o Advertising
o Probably 10 more things I'm forgetting but I think you get the point

I would take a look around the this site a little and read up on the 50% rule before you make an expensive mistake. This one does not seem like one you should pursue - once you factor everything in, it definitely does not cash flow VERY WELL as you say. Good luck!

Eric Tomlinson

Real Estate Investor · Royse City, Texas

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Jan 21 '11, 01:49 PM

I'm sorry, I'm w/ Tom.

You might point out to the seller that it might gross after utilities 48k, but 48k is not the NOI. Just guessing best case scenario might be 30k for NOI.

I think you are on the right track w/ moving on and not spending too much more time, except to maybe politely point out to the seller that it is no where close to a 9 or 10 cap.

Good Luck.

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Jan 21 '11, 02:44 PM

Paying $62,500 for $625 a unit in rent is way too much. NOI will be closer to $34K than $48K. The price is about double what you could pay and make any profit on this as a rental.

Jon Holdman, Flying Phoenix LLC

Kevin Perk

Residential Landlord · Memphis, Tennessee

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Jan 21 '11, 03:22 PM

This is no deal. The utilities are a killer that you will have very little control over. Listen to what everyone else has said here. Jon, Eric and Tom are right on. With the rental income and the projected expenses (utilities especially), the price per unit should be on the downside of $30,000.

Bryan A.

Real Estate Investor · Charlotte, North Carolina

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Jan 21 '11, 11:27 PM

check up on the 50% rule in the rental forums....this one is a loser from the start

Jeremy Silva

Real Estate Investor · montrose, Colorado

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Jan 22 '11, 03:21 AM

You guys are awesome!

Thanks for helping not waste my time.

I'll still meet with the seller, to get the Rent Rolls and expenses for the last few years.

(and he has 26 other properties free and clear that he wants to start to get out of)

Once I get more details... I'll update this post.

Thanks once again... You can tell that I obviously don't specialize in Multi-Family... AT ALL.