Should i offer 195,720 or would you stay away?

3 Replies

I am looking to purchase my first multi-family investment property using an FHA loan. I plan to live in one of the units and rent the other three out.

Below is a description of the property i'm considering: 

Listed Price: $289,900 with a motivated seller. Based on the rent, i would like to offer $195,720. 

4 units rented and pulling in $2330 per month. there is a 5th unit, but this unit needs sprinklers installed to be put in use hence the reason this will still qualify for FHA. The owner has offered to put forth 15K to help with the sprinkler installment. 5th unit could pull in another 500 after repairs.

Built in the late 1800's, 4 off street parking places, 2004 updated wiring, new gas lines, hvac, gutters, 5 furnaces, 3 central air units (2 more of unknown age) 80 gallon water tank from 2007. roof is ~13 years old.  

Repairs/Updates that need to be made: Popcorn ceilings in the bathroom that most likely contain asbethos, new appliances, Some additional dry wall. Tree removal out front, Hvacs are getting old. 

IS THIS A PROPERTY I SHOULD OFFER AT 195,720? OR WOULD YOU WALK AWAY? again this would be my first investment and i would be living in it, any help would be much appreciated. 

Niyi A.

    I'd say go for it, if you have the funds and the means to get the property fully rented and upgraded.  Based on the expected rent of $2830, and a project all in cost of around $225,000, that is a pretty good ratio.  As long as you have some buffer in your bank account for some unexpected up front costs that you didn't anticipate, you should be able to be cashflow positive on it from the get go or soon thereafter.

    I'd say that the hardest thing will probably be to get your offer accepted.  I don't know that the market is so bad that yours would be the highest offer submitted.  But if it is, I'd say based on what you've said so far, you will be getting a good deal.

    Originally posted by @Seung Lee :

    I'd say go for it, if you have the funds and the means to get the property fully rented and upgraded.  Based on the expected rent of $2830, and a project all in cost of around $225,000, that is a pretty good ratio.  As long as you have some buffer in your bank account for some unexpected up front costs that you didn't anticipate, you should be able to be cashflow positive on it from the get go or soon thereafter.

    I'd say that the hardest thing will probably be to get your offer accepted.  I don't know that the market is so bad that yours would be the highest offer submitted.  But if it is, I'd say based on what you've said so far, you will be getting a good deal.

     Thank you Seung i'm going to move forward with my first offer. How much would you have in the bank for unexpected costs?

    Niyi A.

      As much as you can!  No one ever went bankrupt on a cashflow positive property.  It's only when you run out of cash that you run into problems.  You may not need any of it, but it's always good to have as much in reserves as you can.  If you do your inspections well and figure out what the expected repairs will be, then you should have a good idea.

      Even if you don't get this project, going through the motions to investigate and learn about the process is valuable.  Keep doing it until you get a better sense of the market and what it will take to get a successful project done and you will get your first deal in no time.

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