One month left - Is this 5 plex a deal?

3 Replies

Some of you may recognize me, I posted in the forum regarding trouble securing financing in the USA as UK resident.

I found some deals offering seller financing. One in particular, a five plex... If I purchase this, it could get me in the bag with private financing in the future (most require you to have some kind of portfolio usually five doors).

I visited the property today. The seller is a nice old lady who maintains and manages the property herself. With some negotiating, i could create a positive cash flow of $400 a month (from 1300 rent). Asking price is 120k, but i think its worth no more than 100/110 with my calculations. Cap rate is still being figured out, likely close to 10.

However my question is this. The building is from 1900s, the neighbourhood is a low income one, and the tenants are.. Lets just say they arent your happy jolly family types. 3 out of the 5 treat it like their home. Very well kept. HOWEVER one is part of some rehab program and I couldnt even find a bed in there.. he hasnt trashed the place but I basically came in he had no shirt on, skinny as hell and seemed like he was seeing stars. The 5th tenant was a mother upstairs, lived in a friggin pig sty. kid running around, garbage everywhere. definitely on drugs. She was friendly (welfare mum), but it looked like section 8 (i think you americans call it) housing scene. 

Is this still a good deal? Should i judge solely on cashflow or also by the tenants im inheriting? Not to sound heartless, but can i evict the ones i want out for being so damn filthy before their leases run out? 

Even if maintanence costs are low, im assuming getting rid of some tenants and fixing the place back up and getting good ones in will put me in a negative cash flow for six months at least. Or.. if it aint broke dont fix it? Just collect my rents and turn a blind eye.

What do you guys think?

you will need to post all the numbers to get a good feel for the answer to that question 
purchase price 
rents 
taxes and insurance
maintenance
vacancy

property manage or self manage 
how are you going to pay cash or a loan 
repair costs 
good luck @Ess Dee

@Ess Dee

Is this a rooming house?  $1300/month in rent doesn't make any sense for a 5-unit apartment building.  I'm guessing it actually a single family home, correct?

I'd have the current owner toss the tenants that you didn't like before you buy the place.  That being said, the current owner may want to get rid of the headaches associated with the current tenants so she may stick you with them.

As @Mark Brogan

 mentioned, we need to see the full set of numbers.

If by rooming house you are referring to a welfare/seciton 8 than no It is not, but two of the tenants are on housing. 

The figures are as follows:

Asking Price: 120k (will be brought down)

Net Operating income - $20,088.00

Total expenses - $10,201.96 (maintenance still to be given)

Downpayment 10% = 12,000

Less 5% Loan - 6,957.24

NOI: $3,244.72 - a 27.04% return at $271.12 cashflow a month. (THESE ARE ALL ESTIMATES UNTIL I GET MAINTENANCE COST THAN I WILL GIVE NEW OFFER)

Also take into consideration this is not so much a 5 plex conversion, it acutally seemed like an apartment building but just a very old one from the 1900s. Everything was separated perfectly. Its just the quality of tenants im afraid of. Your advice to have the one i dont like removed by the seller is a good idea. 

EDIT: also Aaron, the sellers reason for selling is she was pretty old and wants to retire - Vacation type get out of boring Nebraska money. She has no mortgage left on the property.

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