I completed a direct mailing to small MF owners in Fargo, ND. I sent 400 letters, received 25 calls, and found 5 "hot" leads.
I signed a purchase agreement on Friday to buy two 4-plexes for $330k. Not quite the 10% cap rate I was targeting but close.
They are all 2 bd, 1 bath units fully rented for $500/mo. Landlord pays heat which averages $100/building/month. $200ish from Nov-March.
Borrowing $235k @ 4.5% and 20-year amort. $100k downpayment.
The rents are approximately $50 below market so I'll be looking to adjust those as leases expire. If I can get the units to $550, the cash-on-cash will be 15%
Here are the initial numbers. Just wanted to share!
|Gross Rent||$ 48,000.00|
|Less: Vacancy||$ 2,400.00||5%|
|Less: Taxes||$ 4,800.00|
|Less: Ins||$ 2,600.00|
|Less: Utilities||$ 2,400.00|
|Less: Mgmt||$ 3,192.00||7%|
|Less: P&I||$ 15,600.00|
|Less: Capex||$ 6,000.00|
|Net Cash Flow||$ 11,008.00|
I have a $60k offer in on a tri-plex that needs approx $10-15k of work. Even if we can settle on $70k, that deal should be 12% cap rate and 16-17% cash-on-cash.
Not home run numbers but they fit my plan. Best of luck to the rest of you!
Table didn't past well in first post.
@Nick Horob Thanks for sharing!
Congrats NICK! This is awesome movement forward for you!. Its a nice change to hear that someone is allowing themselves to settle for less than a home run. Way to get the leads on your mailings - good to know its working in this market.
Was this the same guy you were telling me about when we met for beers? Either way Congrats! Lets go out for some more.
Thanks! Same guy we chatted about. I'm definitely down for a few more beers.
How did you come up with vacancy and management expenses? Those sound below average.
Vacancy has been 3-4% for these properties for the last 5 years and that nearly matches the 3.8% vacancy rate for Fargo as a whole.
I've hired a property manager for 7%.
Sounds good. I would consider factoring in larger vacancy and management fees as a general rule. Markets change. 7% PM sounds really inexpensive. Most PM take between 50% and 100% of the first months rent and then a certain % for each successive month. Did yours agree to a flat 7% even if they bring a new tenant?
Thanks for the input. They do not charge a tenant replacement fee. I agree that that they are very inexpensive. Adding a couple points to each category is prudent. Cap rate drops to 9.3% and cash-on-cash to 9.1%. Not great but pretty good for our market.
Also, given that this is our first residential investment we're set up so we don't "need" any net cash return and we're going to start w/ a $10k cash reserve. Vacancy would need to exceed 29.5% before we have to fund the P&I. Never say never I guess!
@John Thedford , what are cap rates in your area for small multi-family? Or any type of real estate for that matter. Just curious. TIA
congrats! Looking forward to seeing you and Steve when I get back to Fargo this spring.
Nice to see some deals in Fargo.
Congratulations on your success.
Hello @Nick Horob,
Congratulations on your first deal! I'm trying to do a similar feat in the WA area, where did you find the listing for MF properties in your area or find ways for me to find a listing of the owners that own MF properties?
Thanks for sharing with us on BP.
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