Purchase or Pass?

Question

Ok, here it is:

My offer is 173k with 13K back at closing.

Total Purchase  Price     $173,000
Seller Concession             $13,000 (roof repairs and closing costs/fees)

Downpayment (15%)        $25950
Debt Service:                     $1330 per month
	 Finance $147,000 x 9%= $1330

Gross Rents: $2775
	      $400 (15% vacancy/rent loss)
Effective Rent: $2370 
Expenses $1100 (water, insurance, taxes, trash, grounds, misc.)

Do I buy or pass?

Jimmy NA · Answer

148K?

N/A N/A · Answer

$130K

Run the numbers at 130K putting the same $26K down @ 9%

If you can't do between $100 & $200 a month per unit, then it's a dog.

If your first offer doesn't embarass you, it's too high.

Michael Rossi · Answer

With 5 units, this is a bad deal (very bad) with $68 total cash flow.  I'd make a much lower offer.

Mike

N/A N/A · Answer

If they're candidates -- condo conversion.

Then again, I'm a big fan of such a thing.

Jimmy NA · Answer

no condo market here.......Boston, NYC it might work, but not in Little Town, USA.

The numbers don;t work, but I plan to put my office in the building so there is a reason outside "the numbers" to purchase this.  It would work perfectly as an office...plenty parking, busy location, etc.

Jimmy NA · Answer

There are (5) units. There is room to increase rents.  Of course, the units have to be cleaned up.

Jimmy NA · Answer

ARV= $225,000
Repairs: $20,000 (high estimation)

Using the 75% "Rule", smart purchase price is closer to $149,000.

Maybe I should pass?

Michael Rossi · Answer

Here is the way I see this deal:

Acquisition cost:  $180,000 (purchase price + repairs)

Gross Rents:  $2,775
Operating Expenses:  $1,387
NOI:  $1,388

Debt ($180,000, 30 yr, 8%)  $1,320

Cash flow:  $68 per month

So the question becomes how many units are we talking about?  This cash flow is a little low if the answer is one unit.  If it is two or more units, the cash flow is very low.

This deal has some potential at a lower price.  I would calculate the cash flow based on the number of units and make an appropriate offer.

Mike