I am looking at a 10 unit purchase, 9 units in one building and one separate home. All but 1 unit occupied
list : 399k
GRI : 77k
Vacancy : 10% =8k
management : 10%= approx 8k
reserves 10% = 8k
taxes = 8k
insurance = 4k
loan terms: 20 year @5% with 25% down = approx 23k
It was built in 1904. the area is low crime, right next to an elemetary school, and the area doesnt have other buildings like these. It seems too good to be true!
My concern is an investor is selling this property, so why are they walking away from this gravy train unless something is wrong? The Realtor said a business partner is moving but that can be just a made up story. How should I approach this.
I'm 23 years old and personally have no exp in rental real estate. I have been reading and listening to BP for months now and have a BA in Finance. My father owns 3 rentals and is an electrician who is extremely handy and knowledgeable in that area. Its very scary to plop down nearly 100k on a property but with such a great return, it is extremely tempting.
Feel free to offer advice/ criticize as harsh as you possibly can :]
Don't worry so much about the Y's, just do you due diligence and walk thur the deal. Have your dad look at it, he sounds like he knows a thing or two, hire a inspector to go thur it and maybe do your own appraisal on it. I have a appraisal friend who will do this for me for 75 dollars as long as he does not have to sign. If the numbers work and all else is acceptable to you then do it.
Check with your accountant and lawyer you use and they may also know of the property. Good Luck
I used $11,000 for repairs/cap. expense and get about a 9.5 cap. I consider that good if your cost of capital is 5%.
Given the age of the building I probably should up the maintenance cost. I would look at the possible deferred maintenance. I would probably want to get it at a 10% given the age of the building and less any deferred maintenance.
People sell for all kinds of reasons. They may be retiring, they maybe be selling to move up to a larger property, they may have held the property long enough that their IRR has fallen and they want to invest elsewhere... who knows? If no one ever sold a cashflowing investment we would have a lot fewer investors.
The only reason that would be worrisome for you would be if they are selling because of deferred maintenance that they can't afford.
Just because they're asking $399k for it, that doesn't mean they paid less than that for it. They may very well have paid double that, and are losing their shirt on this property and just want to get out of it. You can probably look up the sales history of the property to see what they paid for it, I usually do.
As others mentioned, there are other possibilities (moving up to a bigger investment, retirement, etc.). Of course, upcoming maintenance issues is certainly a possible reason as well, so make sure you inspect the building thoroughly. Especially being over 100 years old, there may be a lot of deferred maintenance that the owner wants to unload on some unsuspecting sap.
Thanks everyone. Found out it is a short sale. Makes me feel better about being so cheap! There is an offer on it right now and I'm thinking about offering the list if everything checks out once I visit it.
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