I've done my due diligence. I've found a great property. It cash flows quite well for the area. It's currently completely rented at 1500/1500/950. I'm pre-approved for the full amount, and mortgage + PMI + prop insurance = ~2000$.
However, I now understand the inaction or paralysis that I hear thrown around this site and on the podcasts. The concept of being on the hook for 2000$ a month if I cant get it filled is quite daunting to me.
I know this place makes sense, and I know that 2/3 filled it pays for itself, but just that concept of pulling the trigger and making an offer is really hitting me.
Any advice how to get over this hurdle? Or am I looking at this the wrong way and I should pull back to a lower payment number?
(I'm really hoping that someday, this is one of those times I think back and kind of laugh about)
@Ben Hudnall share more of the deal details and the numbers and have the community chime in. If they feel that it is a deal, you should have more confidence to jump in. Education is the solution to many risk issues.
Once you have pushed your comfort zone, the comfort zone moves to the next level. By keeping to move your comfort zone along the path is how you grow. Stop with inaction and of course you don't grow. The other option is to partner with someone and share the risk and reward with someone else.
Let us know the numbers and you may get the assurance your require or find out you are correct in your concerns.
There are a ton of expenses on a property beyond mortgage and insurance so without the numbers it is hard to assess.
@Jeff Greenberg @Thomas S.
Well, unfortunately I learned another lesson today - the property accepted a different offer.
Anyways, for the sake of understanding if I made a big mistake in my inaction, here are the numbers and caveats:
Current Rents: 1500,1450,925
Water/Sewer = 175/mo
Garbage = 45/mo
Vacancy (5%) = 192.25/mo
repairs (8%) = 307.92/mo
Mortgage Payment + PMI = 1693/mo
Insurance = 1700/yr
Prop Mgmt (10%) = 384.9/mo
This leaves me with a monthly Income of 3849
Expenses of 3324.05 a month
for a cash flow of: 524.95 a month. (self management would give me a 909.84CF)
Total aquisition costs are ~14,000$ for a COCR o f 45%
Cap rate of 8.9
Now caveats and reasons I have been apprehensive: it needs a new roof in the next 5 or so years, One of the hot water heaters is extremely old and will have to go soon, and one of the boilers is from 1995 (ready to go).
Other than that there are some....dubious rehab decisions from the current owner - boarded up window sections, no dishwashers, etc. Lastly, that 1500/1425 rents are definitely priced with section 8 support involved. Market probably bears somewhere between 1350 and 1450.
simplest answer to your issue...
You can know every statistic, fancy book terminology, whatever CORC, CCO, OKREL, f, etc, means, but...that isn't worth anything if you arn't cashing checks every month from it.
@Chris Grenier Good advice. So from your stand point that 500$ I was salivating over would have been worth it.
Also, great to see someone originally from the area (Worcester) I grew up in Westborough
Remember what I posted about CapEx not being a % of gross rent? Not a Chance in France you will be spending only $307.92/mo in repairs/CapEx (8%) on a triplex over the long term ... Will probably be more like $307.93 (joking).
I am not sure of your area... but your analysis seems pretty good! I would add include some cap ex (you mentioned the roof and water heater were on its way out)- David F is absolutely correct.... with these older buildings in Massachusetts, you will be spending money long term
Looks like FHA since you had the PMI correct?
Hello @Ben Hudnall .
Trust your numbers and your work.
I understand the salivating. It sounded pretty sweet. May I suggest you get a sense of the cost of the two big repairs. If you know what you're facing it might not be so scary next time. And, unless you're looking for that cash flow right away, you could also, set some or all of the net aside for a few years in anticipation of the big jobs. $900/mo for a yr would've given you almost $11k/yr toward the roof and you could decide if self managing was something you liked or hated while you learn more about the operations of your property and the tenants in the units. If you hate it, you'd still have your prop mgr option to fall back on. Just a thought. Other than that, be patient. The right one will come when you're ready.
Not knowing the property or condition of stuff...SWAG
figure the water heater about 700-1100 depending on who does the work.
heating system about 7000 to 11000
Roof about 12000 to 20000.
You can always offer say 10K less based on those repairs.
Do worry about the boarded up areas... why was it done?