Need Help Analyzing a Deal in Rockville, CT

7 Replies

Hi BP team - I'm reaching out for some advice/guidance. This is my FIRST deal. Here's the situation:

5-unit off-market in Rockville CT for $260000

-units 1-4 are 1BR and currently rent for $600/month -  market rent is ~$900/month (2units are currently vacant and the other 2 are month-to-month)

-unit 5 is a 2BR and rents for $1050/month (currently rented until March 2022)

-roof, windows, and furnace were all replaced within last 4 years (according to owner - but haven't yet verified by looking at paperwork, etc.)

Owner is interested in seller-financing, but wants to know how much I'm willing to put down to show I'm serious.

Here's what I'm thinking:

-I take ownership of the property by putting 5-10% down. This will leave me with a monthly mortgage payment to the current owner of ~$1500 (principal, interest, taxes, insurance).

-Fully rented, the property will pull in ~$3400 now but ~$4800 after raising rents


After accounting for property management, capex, vacancy rates, etc., I'll still be cash-flowing ~$1000 now and ~$2000 after raising rents. I'm thinking I force appreciation by renovating each unit as I turn them over in the next 1-3 years and then refinance to a traditional lender in order to pay out the current seller before the 5 year balloon payment comes due.


Does this seem like a good plan? Any feedback or advice? Am I missing anything?

Dave, these numbers sound good and it sounds like a good deal. Have you tried running this through the BP calculator? Going that route will give you a more firm number. 

But again, this looks like a great deal considering the owner is up for financing it. 

Question, how did you source this deal?

Good luck and nice work on finding this for your first potential deal!

Hey @Brandon Rush - I appreciate the perspective! I did run the deal through the calculator and it looks good to me - it will cash flow at the current rents even with substantial hold backs to account for operating expenses. 

As I’m sure you probably remember, I’m just a little anxious because this is my first potential deal. I’m going to visit the property Friday: any advice if what to look for or ask of the seller?

To answer your question, I found it by sending emails to Craigslist rental ads. I told them I wasn’t interested in renting but I’d def consider buying if they were open it. This seller responded and here we are.

I’m in the process of kickstarting direct marketing too. I’ve built out a few lists by researching land records and I’ve logged a bunch of hours driving for dollars. Once I’ve got 2000 properties on my list I’m going to start mailers and cold calling. I was trying the MlS for the last few months but didn’t have any luck.

Let me know if you have Any advice for a new guy like me.

Thanks!


Hey @David Constant -
I just sent you a DM with some thoughts, but I'll share some here as well. I will buy ANY deal if the seller allows me to make the terms of financing, LOL. 

Why? 

Because what you buy something for is not nearly as important as to HOW you buy it as long as your loan is long enough and interest rate is low enough. 

Make sure you understand that to get 900 for a 1 bed unit in Rockville, it's got to be pretty nice. That seems to be the upper end of pricepoints, where the average is probably closer to 850. On 4 units that's a 200/mo gross difference, or 2400/ yr.

I think your numbers are off for your PITI payments. They sound very low. I didn't do the math myself, but I wouldn't be surprised if it's closer to 2k/mo with a loan balance of 230k +/-. Interest hurts. An insurance will cost more as it's a commercial property (over 4 residential units).

~$4800 after raising rents double check your numbers here.


After accounting for property management, capex, vacancy rates, etc., I'll still be cash-flowing ~$1000 now and ~$2000 after raising rents. I'm thinking I force appreciation by renovating each unit as I turn them over in the next 1-3 years and then refinance to a traditional lender in order to pay out the current seller before the 5 year balloon payment comes due.
 Make sure the market will support the ARV. there may not be a whole lot of comps in your market. 


Does this seem like a good plan? Any feedback or advice? Am I missing anything?

I like the plan, but i'm concerned with some of the numbers. If the numbers are right, this is a solid deal for the Connecticut market at this time and it will be hard to go wrong on it! 



@Filipe Pereira I appreciate your insights and perspective! I'm going to run the #s based off of your recommendations, particularly for rent. I'd rather low-ball my income, high-ball the expenses, and make sure it still works. If it goes up.. great! If not, at least I'm still profitable.

I just spoke to the seller again to get some more info - he's selling because the live-in property manager recently passed away and because the owner is out of state, he's not able to manage the property himself and he doesn't want to find someone new. 

He's got 2 of the 1BR units vacant currently, the other 2 are rented at $600/mo and the 2BR is set to be rented April 1 at $1000/mo with a 3 month lease that then goes month-to-month.

He said he's willing to do seller-financing with 10% down and 7.5% with a balloon payment at 24 months. Those #s just don't make it work for me. I'd have to sink too much of my money into it without the assurance that I'll be able to refinance out in order to pay him off in 2 years. Or am I off in thinking that?

I'm going to see the property on Saturday to assess its current state. 

I'm thinking I could make 2 offers:

Offer 1: he gets his price and I get my terms: buy it at 260000 with 3-5% down and 3-5% interest with a balloon payment at 5 years. This is a win for him because he gets full asking plus the interest for 5 years. This is a win for me because I keep more money in pocket that can then go into repairs which will allow me to increase rent, thus increasing cash flow. This also allows me to pay off more of the mortgage before refinancing in 4-5 years to pay him off.

Offer 2: he gets the terms he wants and I get the price I want: buy it closer to 200000 by using a HML and then take the next 9-11 months to BRRRR it. This is a win for him because he gets more cash now, which allows him to pursue other opportunities. It also reduces his risk: he doesn't have to worry about me defaulting and having to foreclose on me. This is a win for me because I get the property at a price that allows me to BRRRR it and only leave 10-15k in the property depending on what it appraises for.

What do you all think of this plan?

7.5% is almost twice the going rate right now for investment loans @David Constant

I like your plan, but he probably won't, unfortunately, lol. Try to find the seller's angle. Find out what they want. Everyone wants something. You may try pitching him to take a longer deal because of the potential tax implications. If he has held the property for any significant amount of time, he's probably going to pay capital gains tax on it, so by holding the note for a longer time, he may be able to spread out the tax liability as well. 

Just some food for thought. 

I looked at the same property. Some things to factor in- the parking. With 6 cars (1 per apt minimum and 2 for the 2 BR), I did not see enough parking at the property.  Also, check your comps on rent prices.  The mill rentals down the road are not comps for you (they are really nice).