First purchase evaluation.

6 Replies

Hello,

I'm going to be jumping into a buy and hold multifamily home in very early 2015 and was just evaluating some properties. I've been using the 50% rule for most of these (which I could be doing wrong) but I have 1 property that looks fairly promising.

A triplex listed at 135k.

2 buildings and average rent is listed at $700 for each unit.

Each unit is 2 bed and 1 bath.

I would be putting 6k down and using another 2k to cozy the place up via paint/ fixtures ect. To help it rent faster.

Here is the catch. I'll be living in 1 unit (the stand alone unit in its own building) with 2 friends each paying 300. So, it would cost me 100 a month to stay in a unit. We don't mind rooming together as its what we already do. Now, I know there is going to be roughly 135 a month for mortgage insurance as well.

Right off the bat, does this sound like a good idea?

I'm not looking to make HUGE profit but rather steady profit and a place that I'm not pouring rent money into.

ZIP code is 85008 if you want to evaluate the area.

by "early 2015", these numbers will be useless.

Originally posted by @George P. :
by "early 2015", these numbers will be useless.

This is for learning atm. I understand the numbers will be "useless" 8 months from now.

I'm still starting out but I would want to know what the cap rate is, expected NOI after insurance, maintenance, property taxes and the pmi you mentioned. Will you be using a property management company and will you have funds to support about six months of expenses? Is the area easy to rent to and who is your targeted pool of renters? Section 8? Young professionals? University students? I'm a commercial underwriter for a large regional bank and have a ton of experience underwriting and evaluating commercial real estate including all types of IPP. PM me if you'd like to work through the deal and get the perspective of a banker. Good luck.

@George P. I wouldnt say "useless". Eric wants a genuine answer to a possible situation. Your answer is anything but helpful. Don't waste your time on these forums telling people that their numbers are "useless", instead, you could push him in the direction you deem necessary.

@Eric Anderson, your plan sounds great! I would check the comps in the area and get insider info on other rental properties in the area to get a ball park range of what you would need to do to the home to appease tenants. ARV? Utilities? NOI? ESCROW?

I'll help you through it. As for now I can say yes it no, but as for the market in 2015...you will need to ride it and see where it takes you.

Quick calculations show an NOI 10,500, and a CAP of 7.8%

Its not a great return, as this is before Debt Services, but if the rent is below market, and you can raise the rent, but maintain the expenses where they are at, or lower them, it could take the property into a decent cash flowing property.

Take a look at rentometer.com, and see what rental rates are for a comparable place in your location.

Best of luck in your studies!

If I use the basic 50% rule the noi is 12000. If I rent out 2 units for 700 and the last for 600 (which includes me in it). Lets say for the sake of pmi we use 55% then we get 10800 NOI. Keep in mind, this is while I'm living there.

@Matt Yates, no I will manage the property for now since I will be living there. With 6k down I'll have 4k to spare, so I can cover payments for quite some time. With a fulltime job income as well. The area will attract both university students as well as young professionals. Not a section 8 property.

@Michael Moikeha I'm not sure what you mean by cap rate of 7.8%. Thank you for the resource. Rentometer rates the rent about average for the area. I also plan on renovating a little to attract more renters.

Thank you everyone for all the advice thus far. Very helpful.

Updated about 4 years ago

Edit: rentometer averages the area at 600 for a 2 bed. Although this property is already better then most around the area. With a few added renovations it should rent very easily.

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