Possible 8-unit opportunity, needing advice

4 Replies

Hey BP community,

I have came across a possible 8-plex for sale, which has a unique history, that I need some advice on.
The building has 8 units with 7 of them rented weekly and one rented monthly.  This is obviously not ideal for a long-term buy-and-hold but I got the financials and the dang place cashflows like a boss.  Over $8000/mo after landlord-paid utilities.  So it's basically a weekly hotel.  I know this comes with it's own garbage bag of problems (lots of cleaning for the weekly turn-over, not as stable income, possibly some lower income people floating through there, etc).  This building is constantly filled from what I was told.  It has a hefty price tag, I assume because of the cashflow.  The owner is asking $599,000 which I think it too much and wouldn't pay that.  Any input would be great.

@Adam Smugala

Are you looking to keep running it as a a quasi-hotel or change it over to long-term? Also, clarification of what is included in your cash flow number will help. 

Quick napkin math shows $8,000 per month in cash flow = $96,000 annually. I don't know what you've baked into your cash flow number but with another $2K/month of "buffer" expenses leaves you with $72,000 NOI.

72,000 / 599,000 = 12% Cap

And you have PLENTY of Debt Service coverage on it assuming 25% down at 4% amortized over 25 years. 

What has you thinking it is too expensive? What are your metrics you're measuring against?

@Mason Hickman I don't like the idea of weekly short-term rentals.  It attracts "shady" people and the local community would rather see it be converted to more long-term renters.  The problem is these are all 1b/1b and the local market only supports rents of around $500/mo for 1b/1b.  That brings the cashflow waaaaay down (around $4,000/mo ) which at a $600,000 price tag makes the cashflow almost negative.  But because of their current cashflow, I suppose the can command that level of price.  That price only works if the current "hotel-style" renting stays in place.  

@Adam Smugala It sounds like you are mistaking "cash flow" for "gross rents" and these are drastically different. At $500/month for 8 units that would be $4,000/month in "gross rents" not "cash flow" because you have not factored in any of your expenses yet. Your actual "cash flow" is your net income after all operating expenses.