Is this a good deal?

Question

Hello all,

I am starting to look for my second buy and hold property, and wanted to run the details past others to get opinions and ensure that I’m getting a good deal. The property is a four-plex, asking $139,900 and is fully rented. The gross rents are $39,600 per year. Assuming a 13% vacancy rate, yearly NOI is $17,000, which includes $3,750/year for unexpected repairs. I plan on slowly fixing up units when they become vacant.

One of the issues is that the property is located in a flood zone, although it has never flooded and has a dry basement. I’ve never purchased a property in a flood zone. Is having flood insurance enough to mitigate this issue, or should I adjust the offer price to account for this detriment?

I’d appreciate any comments or thoughts that any of you have about these numbers, if it’s a good deal, or recommended offer prices. Thanks for the help!

Matt

Matthew Trieber · Answer

Thanks Chris!

There are no real comparable comps in the flood zone area. The multi-families don't seem to come up for sale very often, and I'm looking for cash flow more than appreciation. I will be financing the deal, so I factored in increased flood insurance costs into my expenses. That brought the NOI down substantially.

As far as renovations go, any upgrades would be builder grade and mostly cosmetic. All of the spaces are fairly sound, but could use some new paint, removal/replacement of tile ceilings, and maybe some new countertops and sinks. I wouldn't anticipate any more than $20,000 on the whole house (over time). Thanks again for your help. I'm just nervous pulling the trigger without talking to some more experienced people first.

Matt

Chris T. · Answer

It depends on your definition of a good deal.

What are the comps? Make sure you use similar comps in a flood zone as well.

how much $ do you need to put in once they become vacant?

Are you financing this? if so, the bank will probably require you to get flood insurance. Which will skew your numbers.