Rate My Deal
Rental Property Investor · Pocatello, ID · Member since 2014 · 33 posts · 6 votes
I would love to hear comments and suggestions and creative counter offers on the following owner financing deal-
6 unit (possible 7th) multi-family property in an older part of community. Old, not run down or "the hood", in a college town of approx. 60k population. Out of state for me but with many family and friends, and frequent visits. To be professionally managed. This is intended as buy and hold, till death do I part, (or outrageous offer) and will have 1 unit as a part time residence for myself in the future.
160,000 purchase price
20k down
6% Interest
10 yr. Balloon for balance remaining
No prepayment penalty after first year
Cap rate at 18 or better...yes 18.
BRRRR?
@Blaine Johnson I thought I would let you off easy on the cap rate as I just saw someone else on BP make the EXACT same error a couple of days ago - I am actually a little surprised that @Account Closed didn't catch the issue before me in his earlier post, as he usually has a very keen eye for such calculation issues.
I hope that my comments were helpful! In the event that you decide to still move forward with that investment, make sure to check on those utilities to see who pays (owner or tenant) - that can be a big swing factor in the economics of the project!
@Matthew Schroeder See it really doesn't make ANY difference if you calculate the NOI correctly or incorrectly because if you use the cap rate incorrectly you still end up with a USELESS number in both calculations. Now if @Blaine Johnson had actual cap rate comps from closed sales of similar properties in the same market around the same time then IF he had a correct NOI calculation then he could arrive at the market value for the property.
As long as anyone is just dividing NOI (correct or not) by some asking, guesstimated, hoped for price then you have NOT created a cap rate. Think about a 1000 sf house that they are asking $100,000. That would be $100 a SF. Yeah! But what if you knew a SALE of a 1050 house sold for $84,000 and a 980 house sold for $80,750. Wouldn't it be better to use THOSE $ per SF to come up to an offer of say $81 a SF times 1000=$81,000? See, just saved yourself $19,000 by using correct numbers properly.
Blaine: You say it's not in a hood, but the rents are really low. Given the information you posted, I'm thinking it's in P, a state university town? Is this the multi-unit property on W.? If so, it may not be a hood, but those rents and property condition/age come with problems. Are you experienced in that type of land lording? Seems like P. is full of fresh 1-2 BDR rentals, all safer and in better areas in the $400-550 range.
Blaine: You say it's not in a hood, but the rents are really low. Given the information you posted, I'm thinking it's in P, a state university town? Is this the multi-unit property on W.? If so, it may not be a hood, but those rents and property condition/age come with problems. Are you experienced in that type of land lording? Seems like P. is full of fresh 1-2 BDR rentals, all safer and in better areas in the $400-550 range.
Smart Girl! Great detective! I did say it was old. But I would not categorize it as any less safe than any part of town that is not on a hill. Yes there are other options in the area and I am looking into several that may meet what I am looking for. I have owned this type of property before, and yes, it needs work. That is the biggest detriment to the deal, beyond the fact that I am not there full time. Rent in the entire city is low compared to the required investment. Always has been if not owner occupied. You must be from there or know it somehow? I was raised there and then raised my family there.
Blaine: You say it's not in a hood, but the rents are really low. Given the information you posted, I'm thinking it's in P, a state university town? Is this the multi-unit property on W.? If so, it may not be a hood, but those rents and property condition/age come with problems. Are you experienced in that type of land lording? Seems like P. is full of fresh 1-2 BDR rentals, all safer and in better areas in the $400-550 range.
Smart Girl! Great detective! I did say it was old. But I would not categorize it as any less safe than any part of town that is not on a hill. Yes there are other options in the area and I am looking into several that may meet what I am looking for. I have owned this type of property before, and yes, it needs work. That is the biggest detriment to the deal, beyond the fact that I am not there full time. Rent in the entire city is low compared to the required investment. Always has been if not owner occupied. You must be from there or know it somehow? I was raised there and then raised my family there.
It's the other options that would give me pause. There appear to be plenty of nice to very nice rentals available for $400-550. Do you know the vacancy rate? Those are some low rents compared to property value. For those ratios you should buy in rural or desert CA. At least you won't be buying with holdover tenants paying $280/mo.
@Account Closed
I am only looking at P for personal reasons, but as stated before, the deal has to work in my bank accounts favor or I will not do it. This place is getting maint. help now and has many unseen repairs and other upgrades. If you call a new roof an upgrade instead of maintenance, etc!? I could turn every tenant over as there are no renters protections or controls beyond the lease. I have done that before to rehab and increase subsequent rents. Most of the tenants are students/singles as the unit size and price would attract. The property is at 80% occupancy currently (which helps rather than hinders at this time) but rarely has any empty unit for more than a few weeks but I do not have solid evidence of that yet. If the 2 largest units and 1 of any other stay rented, they will cover the mortgage and expenses. The rest is cash flow.
@Account Closed
I am only looking at P for personal reasons, but as stated before, the deal has to work in my bank accounts favor or I will not do it. This place is getting maint. help now and has many unseen repairs and other upgrades. If you call a new roof an upgrade instead of maintenance, etc!? I could turn every tenant over as there are no renters protections or controls beyond the lease. I have done that before to rehab and increase subsequent rents. Most of the tenants are students/singles as the unit size and price would attract. The property is at 80% occupancy currently (which helps rather than hinders at this time) but rarely has any empty unit for more than a few weeks but I do not have solid evidence of that yet. If the 2 largest units and 1 of any other stay rented, they will cover the mortgage and expenses. The rest is cash flow.
Enjoy!
I don't know how much enjoyment I'll get out of it, probably very little. Keep in mind that those 400 to 500 dollar rents that you're talking about are mostly free and clear, or owner-occupied properties that are augmenting the mortgage payment, they are not making any money. Check their market value/purchase cost against those rents. They are no better than this deal that I have found yet. The fact is, I got the h#ll out of P because of it's perpetual stagnation in all aspects. The powers that be there think that a new big box store is an economic boom, while a million square feet of commercial/industrial space goes unused. I really should just stay away.