First time investor NEED help to decide if a good deal!

13 Replies

Thinking I am ready to move forward with this deal. My husband and I are in are in our young 30's and are already homeowners and decided we want to start to invest in rentals for our future retirement. We live around the Pittsburgh area and found a 7 unit apartment in Braddock (4 units are currently renovated) All have tenants. Here are the #'s

Asking 140,000

They countered at 127,000 with paying 6% sellers assist.

We will put 20% down

Total yearly rents are $32940

Taxes $3185

Water and sewage $1620

Insurance $1500

Property management 10%

All the calculators I did shows approximately 18% Cap rate...I am VERY new to this ...so PLEASE give me any and all input you have. Thank you

@Kim Conley  congrats on getting this far on a deal! Using 50% expenses I've got it at a 12.9% cap rate. What is the market cap rate for that area? I'd also take into account the age of the building and maybe bump it up to 55% to 60% expenses depending on how old it is. That will give you conservative ballpark #s then it's a matter of proving or disproving those expenses during due diligence.  

You'll also want to consider the location and if it's in the path of progress. I don't know the Pittsburgh area but I'm sure many Pittsburgh people on BP can help out with that. 

Lastly, is there upside? For any purchase I'd always want there to be some upside to increasing the value of the property. In this example, perhaps it's renovating the remaining units to command a higher rent. 

Medium logo1Joe Fairless, Best Real Estate Investing Advice Ever | http://www.apartmentsyndication.com | Podcast Guest on Show #227

@Kim Conley   I buy on the eastern side of Pittsburgh, but have avoided Braddock.  It's pretty rough.  You can find 5 and 10k houses there pretty easily, but I'm not sure how well they will rent. 

Thank you so much for your reply @joefairless It is def an older building!! One unit is being used as storage unrented, and needs completely redone. Which will eventually bring in $450 a month for about $10,000. Another unit as well is very outdated! I appreciate your help! My cap rate didn't include management fees either. Would you go for this deal or keep looking???

The estimated median income in that area is under $23,000.  Not an area I would invest in.

I added in another 25% for vacancies, maintenance, and reserves. 

@kim 

@Kim Conley  I don't know the area so I'd have to have info on that in order to say if I'd pursue it or not. Judging by comments from @Rick C.  it might be difficult to find quality residents. 

If I were you I'd speak to a couple property mgmt companies that manage multifamily and get their thoughts on the area and the property. 

Medium logo1Joe Fairless, Best Real Estate Investing Advice Ever | http://www.apartmentsyndication.com | Podcast Guest on Show #227

Originally posted by @Kim Conley:

All the calculators I did shows approximately 18% Cap rate...I am VERY new to this ...so PLEASE give me any and all input you have. Thank you

@Kim Conley You are using a cap rate incorrectly. Best you learn the correct way when you are starting out. A cap rate is determined when a buyer and seller agree to terms and close their deal. You would want to find cap rate comps in your market for comparable properties. You will then use a cap rate that compares closest to your desired building. Then take the MARKET cap rate and apply it to your desired properties NOI to come to the value that the MARKET is setting for the NOI you are purchasing. You purchase a NOI, NOT a cap rate. That would be backwards!

ughhh I have soooo much to learn! I feel like it's impossible! Thank you all for your help! You guys are great! I think after sleeping on it and all your comments, I'm going to pass! With my lack of knowledge I'm going to start with a SFH. I've been reading so many books and this site but I guess I need to do the real thing to understand it all! ????

ughhh I have soooo much to learn! I feel like it's impossible! Thank you all for your help! You guys are great! I think after sleeping on it and all your comments, I'm going to pass! With my lack of knowledge I'm going to start with a SFH. I've been reading so many books and this site but I guess I need to do the real thing to understand it all! ????

ughhh I have soooo much to learn! I feel like it's impossible! Thank you all for your help! You guys are great! I think after sleeping on it and all your comments, I'm going to pass! With my lack of knowledge I'm going to start with a SFH. I've been reading so many books and this site but I guess I need to do the real thing to understand it all! ????

ughhh I have soooo much to learn! I feel like it's impossible! Thank you all for your help! You guys are great! I think after sleeping on it and all your comments, I'm going to pass! With my lack of knowledge I'm going to start with a SFH. I've been reading so many books and this site but I guess I need to do the real thing to understand it all! ????

@Kim Conley  

I share the same frustration. Just when I think I know the REI path I want to take, I read something new that makes me realize I still have so much more to learn.

If you haven't done so yet, I would suggest you set up keywords for topics & locations that interest you. 

The concerns I would have on the deal is not the numbers Braddock has turned into one of the worst areas in all of Pittsburgh, the last time I was there (2 weeks ago) I counted more boarded up houses then occupied.

Just count a higher vacancy rate for this area for sure, you are going to have trouble finding good tenants.

You can find deals with good numbers in better areas in your price range, maybe not 7 units but you could find a good 3 or 4 unit that cash flows really well.

Medium 3Ian Hoover, Deacon Hoover Real Estate Advisors | [email protected] | 724‑492‑8312

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