6-plex numbers & questions

[Chad Adams]

Asking Price $180,000

Gross Monthly Rent = $2,650

Additional Income = $175 (plus or minus; laundry)

Owner pays water & trash (I don't have numbers yet), tenants pay electric.

Taxes = $1,400/yr

Based on those numbers it seems like a something to take a closer look at...agree?

Other info/concerns:

It has a tile roof (rare for my area), can see some chips from the ground.

Nice neighborhood.  Safe, no crime to speak of, kids playing and people taking walks when I drove by.

I asked selling agent for rent roll and utility bills.  She respond with, "they really don't keep good records on the property". She will send me what she has been given, but it is probably sketchy at best.

[Bill Jacobsen]

Obviously, you can estimate a cap rate from the data you have.  It will be just an estimate.  You can compare with your minimum rate of return and with the average cap rate in your area. 

I would ask to see the last two years' tax return.  Get water an trash info. from the utility companies.  You may need owner's permission.  They need to understand that your offer will be higher if you know the historic numbers than if you have to work with unknowns.

Good Luck.

Bill

[Roy N.]

@Chad Adams 

Is that gross income number real or is it the scheduled rent?  If in doubt, apply your own vacancy allowance (on a 6-plex, we would use 8.33 (1 month in 12) or 10% depending on the locale).

Additionally, we never count the laundry revenue - our experience has been that if negates out the extra cost of the commercial machines, their operation, and upkeep  (others seem to like them).

I can be of no help with the roof ... tiles do not like winter, so we have never encountered one.

That said, it could be alright ... bring the rest of the numbers once you have them.

[Chad Adams]

Thanks @Bill Jacobsen and @Roy N. 

I called the city and figured out that the water bill runs between $80-$180 per month.  I'm using $180 in my calculations for a yearly total of $2,160. I didn't even know the city would tell me this information.  Thanks for suggesting it!

I called the trash company, but had to leave a message. I know they are using a dumpster on site.  He will be calling me back with the numbers, but I might not hear back from him till Monday.

I'm estimating:

8% vacancy ($2,544)

10% property management (though I'll be doing this myself) ($3,180)

8% Maint & Repairs ($2,544)

$630 for insurance (Price/1000*3.5) - seems low to me. I've submitted info for a quote @ http://www.landlordinsuranceequotes.com (don't know if that's a good site or not)

Assuming a purchase price of $165,000 I show a cash flow of:

$684 (assuming 100% financed @ 5% for 30 years)

$753 (assuming 25% down @ 5% for 20 years - commercial loan on 6-pled)

$611 (assuming 25% down @ 7% for 20 years - commercial loan on 6-plex)

Thoughts?

Thanks!

[Chad Adams]

Trash guy just came back with a rate of $86.60 per month (higher than what I was estimating before.

Now including that the numbers change to:

Assuming a purchase price of $165,000 I show a cash flow of:

$631 (assuming 100% financed @ 5% for 30 years)

$700 (assuming 25% down @ 5% for 20 years - commercial loan on 6-pled)

$557 (assuming 25% down @ 7% for 20 years - commercial loan on 6-plex)

[Chad Adams]

Once more to pull all the numbers together:

6 units

$180,000 = Asking

$165,000 = guessing at the final purchase

INCOME:

$2,650 = Gross Rent / Month

$31,800 = Gross Rent / Year

$175 / Month for laundry (I'm not including this anywhere other than just to mention it)

EXPENSES:

$2,649 = Vacancy (estimated @ 8.33%)

$2,649 = Main & Repairs (estimated @ 8.33%)

$3,180 = Property Management (10% of Gross yearly rent - though I'll really be doing this myself)

$1,400 = yearly taxes

$3,200 = Water and Trash (these are actuals).  I still don't have a number for electricity.  Tenants pay their own, but I'd be responsible for some outside lights and the laundry room

$630 = Insurance (just a guess based on purchase price/1000*3.5 - forget where I found that calc)

Total Expenses = $13,704

[Roy N.]

@Chad Adams 

I think the insurance number is low, but I do not know your area.  I also find the property tax extremely low ... but I live in Canada, so almost everyone's property tax looks low.

What about the house meter for hydro?  You have a laundry room, so most probably there is a house meter and a house hot water heater.

What about lawn care and (if necessary) snow removal?

I threw you numbers into my modelling tool with the following changes:

I used the ask price: 180K

maintenance - 10%

vacancy allowance - 10%

Insurance - 1K/yr {rather be too high than too low}

lawncare/snow removal - $75/mth,  $900/yr

Hydro (House) - $100/mth, $1200/yr

Water/sewer - $85/mth, 1020/yr

Garbage - $85/mth, 1020/yr

Mortgage: an LTV of 75 and 6.0% interest rate with a 30yr amortization.

an opportunity cost of capital at 8%

 a 15 year hold period.

Did not count laundry revenue

This brings your OE to ~1025/mth,  ~12,300/yr  ... an operating ratio of ~43% ... which strikes me as low, but wonderful if true.

Just to be pessimistic, I added in another 2000/year of misc expenses to bring your operating ration to 50%

With all of the above in the mix, I get a debt coverage of ~1.4 and a CoC of 10.5% Which is passible.

If you could purchase for 165 to 175K and the real expenses are closer to $12-13K/year, then this is will be a good investment with the following caveats:

- I did not budget for upfront capital improvements that you would need to do at purchase;

- Since I know neither the market nor the property, I modelled with no property value appreciation and no rent improvement.

[Chad Adams]

Thanks @Roy N. 

I appreciate all the help and advice. 

I'm going to move forward on this property (though slowly and with caution).

I'll post back here if/when we make an offer. 

Thanks,

Chad

[Reed Starkey]

Did you get the property?