Opinions/Advice on my first real estate offer
Hello All,
I've been reading a ton lately about real estate and I have been asking questions to everyone that I know that own property, but I still have a ton to learn. I have been eager to invest, but haven't quite found the right property. I recently found a property that I think I am going to put an offer on this week. I was hoping that I can give you all the information I have at this time, and get your opinions. I really want to see how far I can grow this real estate thing, but I want to make sure I have a solid first property.
I came across a 4 unit building near a state college south of Pittsburgh, PA. As far as the building goes, Its a wood frame/sided building with 2 units upstairs and 2 downstairs. Each unit is 2b/2ba. The bottom 2 units were in good shape and the top 2 were in good shape but slightly outdated. The roof is nearing its life expectancy and will need replaced in a few years. It has 2 furnaces, one of which is from 1975. Finally it has fuse boxes instead of breakers. The roof estimate is ($9,500). I can have a furnace installed at cost (3k). And the electric should run about the same (2-3k). Nothing is urgent, but these are the expenses i see on the horizon.
The location of the building is about 4-5 blocks from the entrance to the college campus. The seller says he always has 100% occupancy. When I scouted the property out, I was a little surprised noticing more for sale/rent signs than I had expected. Because of this, I pulled the enrollment numbers for the college. I went to school there from 2001-2004 and it seemed less populated. I found the the school had roughly 9,500 students in 2001 when I began school there. The enrollment has declined 20% since 2010 and is currently around 5,500 students. Enrollment in 2017 is up 3%. It seems a lot of the state schools had declining enrollment, and some rumors began of mergers. This particular college was founded in 1852 and recently had tens if not hundreds of millions of dollars in renovations the last 10 years. I am not overly concerned about the college going anywhere, but food for thought.
The financial particluars: The 4 units rent for 750,750,850,850 currently. The realtor seems to think they are low relative to market, but for now those are the numbers I am using. The landlord also currently uses 11 month leases, not 12.
The yearly expenses according to the seller are (I will ask for verification pending my offer):
Homeowners $2509
Flood $1325
County Tax $224
Boro Tax $308
School Tax: Waiting to hear but looked at millage and estimate $950ish
Utilities, trash, etc: $6,000
mortgage: between 400-450 (depending on sales price)
Using these numbers:
$35,200 income
$ 16,750ish expenses
$ 18,450 profit (minus 5% vacancy?, 5% maintenance, 8% cap ex?)
It seems I would be left with $15,129 in cash flow or $1260 per month.
The house is currently listed at 130,000. The seller purchased the house in 2004 and paid $65,000. It has been on the market for 165 days. It was off market but a prior deal fell through. I found that the seller is moving to Florida for retirement and is eager to sell the investment properties he owns. For tax purposes, the house was appraised at $97,500, but that is usually not necessarily in line with the sales price. The realtor seemed to hint to that would probably take at least 15k off his ask price; however, Im not ruling out a lower possible offer.
Ive tried to list everything I know about the property. Id would GREATLY APPRECIATE anyone who is willing to take time out of their day to offer any thoughts, not only on the my calculations for the cash flow aspect of the property, but also some thoughts on making an offer, location near the college. The sellers agent, said she will do her best to find some comps, but that there aren't a ton of comparable properties that have recently sold.
Thanks in advance!!,
Brian Whitney