Deal Analysis: Basic Math, Calculators and Finding a Great Deal

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Deal Analysis: Basic Math, Calculators and Finding a Great Deal

James Hutson
Wholesaler · Cary, NC · Member since 2014 · 54 posts · 13 votes

Good Evening BP'ers

Interesting situation here:

Planning to house-hack a triplex or quadraplex here in Raleigh, NC

Even once I can secure the finances, hunting down the right property has proven to be EXTREMELY difficult. Raleigh is a great market--constantly ranked in the top 2 or 3 cities in the country for jobs and just in general. Perhaps it's just my inexperience in deal analysis keeping me blinded to opportunities.

The problem is, not only can I not figure out how to calculate/where to find half the data needed for the Rental Calculator, but even if I get the rough numbers, I cannot find any properties that are profitable. The ones I find barely cover the mortgage, let alone the mortgage and the 50% expense rule of thumb. So the bottom line is I'd be lucky to find one where I live for free. Seems like turning a profit at all, let alone the minimum I want of $200/m is an impossibility.

I know I may be foolish searching the MLS. I should probably go to our TREIA meetings or the other deal-making sessions around here. I think the investors find all the good ones before they ever hit the market. Perhaps I should start contacting owners of off-the-market or withdrawn tris and quads and if the numbers work, make an offer?

For instance, bellow is the basic data on a triplex I ran through the BP Rental Calculator.

  • Built in 1996
  • Two story
  • Listed: $225,000
  • Sp: $215,000 (hypothetical of course...it was on the market for ~100 days and was withdrawn a few weeks back).
  • Loan: $215,000
  • Down Payment: Assuming FHA 3% = $6,450
  • Interest Rate: Not to exceed 4% (here I'm seeing FHA's go for 3.8ish)
  • Annual Taxes: (2015) $2,339
  • Annual Insurance: Not sure what insurance is on a triplex and I know it depends on the area. Thoughts?
  • Tax Rate: 0.908
  • Unit 1, 2 and 3 are each 2 bed, 1.5 bath.
  • Rent: Unit 1 $725/m. Unit 2 $700/m. Unit 3 $695/m If updates/repairs are made, I imagine I could boost these numbers. Not sure how much since I don't know the ARV or what other rents in the area go for since most are 1 story duplexes or quads and most aren't updated/improved.

What are your thoughts on it and what else am I missing. Again, I wasn't able to fill in all the fields in the calculator since I was unsure about how to calculate/estimate/find some of the data (e.g. after repair value, closing costs, etc...)

Perhaps I'm running the numbers wrong and I need to find out how to run them correctly so I can start building experience with deal analysis. This will be a must when it's time to apply these calculations on my future triplex.

Thanks a million!

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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
10y

Welcome to the top of the market!

A few comments. First, there are not many triplex or quadraplex properties in Wake county. These numbers are for ONE FAMILY (01), TWO FAMILY (02), THREE FAMILY (3), FOUR FAMILY (4) based on Type & Use field public data:

289284 01
2741 02
497 03
624 04

Most 2-4 family are in Raleigh. The numbers restricted to just in Raleigh are:

146531 01
1893 02
326 03
589 04

Of the 326 triplexes, many were built in the early 1980s...

19 1980
17 1981
25 1982
23 1983
30 1984

and one was built in 1996. Second comment is that you are using numbers for an almost fully leveraged deal, which is great! But that takes a toll on cash flow because of debt service. Third comment, one you probably know, is that the handful of comps (arms length transactions, no Disqualifying flags) are actually lower $/sq.ft. than your deal. Probably why it didn't sell. Last comment is that the owner bought for $205K (+/- $250) in 2002 and prior owner for $188K (+/- $250) in 1996. Not much appreciation there for either owner. Maybe not for the new buyer (you?) either?

No (most likely negative) cash flow and no appreciation. Not ideal in my opinion...

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    SFRs are fraught with your problems on calculations.

    MFUs have issues with Realtors not understand the business.

    So it's a grunt work for you.

    You would like to have GOOD numbers for GSI and NOI, but that also implies the expenses are known, declared and accurate- - without the SchE, you can't verify them.

    Hence, a good estimate of expenses is 30% of GSI. (who declared the 50% rule anyway?). If the GSI - GSI * 0.3 gives you a reasonable NOI, then proceed to force disclosure of true expenses. Otherwise the deal is shaky IMO.

    1Reply
  • Matt Rothwell
    Investor · Arden, NC · Member since 2013 · 87 posts · 35 votes
    10y

    Raleigh is a tough market to "multi family house hack" in, the small multi family houses are not in nice areas for the most part. The ones that are in places you'd actually want to live go really quickly. I live in a duplex, and the numbers are terrible. I live cheaper than I would in a single family home, but it's not free by any means. 

    I would suggest that you adjust your expectations a bit, either aim for lower returns or look for crappy houses that need a lot of work that you can pick up for nothing. Or live in the hood.  

    2Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    Welcome to the top of the market!

    A few comments. First, there are not many triplex or quadraplex properties in Wake county. These numbers are for ONE FAMILY (01), TWO FAMILY (02), THREE FAMILY (3), FOUR FAMILY (4) based on Type & Use field public data:

    289284 01
    2741 02
    497 03
    624 04

    Most 2-4 family are in Raleigh. The numbers restricted to just in Raleigh are:

    146531 01
    1893 02
    326 03
    589 04

    Of the 326 triplexes, many were built in the early 1980s...

    19 1980
    17 1981
    25 1982
    23 1983
    30 1984

    and one was built in 1996. Second comment is that you are using numbers for an almost fully leveraged deal, which is great! But that takes a toll on cash flow because of debt service. Third comment, one you probably know, is that the handful of comps (arms length transactions, no Disqualifying flags) are actually lower $/sq.ft. than your deal. Probably why it didn't sell. Last comment is that the owner bought for $205K (+/- $250) in 2002 and prior owner for $188K (+/- $250) in 1996. Not much appreciation there for either owner. Maybe not for the new buyer (you?) either?

    No (most likely negative) cash flow and no appreciation. Not ideal in my opinion...

    5Reply
  • Keith N.
    Investor · Raleigh, NC · Member since 2015 · 189 posts · 102 votes
    10y

    HI @James Hutson,

    I was in the same situation as you a few months ago.  Ideally, I wanted to find a small multi that I could owner occupy and live for cheap/free.  It isn't just you having trouble to find anything that makes financial sense, as It proved to be EXTREMELY difficult for me to find ANY type of multifamily that wasn't either in the hood or way to expensive in comparison to market rent.

    I moved on and began focusing my search on only townhomes and SFR's, but one day a Duplex in a good neighborhood in Raleigh popped up. I viewed the property within 16 hours of it being listed, was the first offer, but the listing agent called me the next day saying their were now multiple offers. I ended up paying 15,000 over listing price, but I got the place renovated, rented out the other side, and am hitting the 1% rule and living for free. I also used an FHA loan and this was my first property. I did all of this with very minimal cash and I guess you could say it was a bit risky.

    I guess my advice would be to jump on any multi that looks like a good deal immediately, or maybe organize some sort of marketing campaign to scoop up an off-market duplex at a discounted price.  PM me if you want more info about the numbers on my property.  I can go into vast detail if you want.

    Good luck!

    2Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
    10y

    Raleigh is really at the top of the market. People who are buying , are paying 5-10 years forward looking prices. A few things I have learned:

    Network a lot and build good relationships to get quick access to good deals.

    Be ready to always compete for any property. There are tons of people with big pockets trying to get into the Wake county market. Like Keith mentioned, you have to be willing to offer more than asking price to have a chance, that someone will actually look at your offer.

    If it is possible, try to look in other nearby cities/ counties. Durham, Johnston, ... etc. I have been looking at Greensboro more and more and I'm finding things there, that make more sense to me than in Wake county.

    2Reply
  • David Patchett
    Melbourne, FL · Member since 2015 · 11 posts · 8 votes
    10y

    Duplexes, tri's and quad's are acquired for the cash flow. Price appreciation for these products are only a bonus (unless local market conditions are hot and escalating). If they don't cash flow, then pass on them... pending your own personal strategy, of course. 

    0Reply
  • James Hutson
    OP
    Wholesaler · Cary, NC · Member since 2014 · 54 posts · 13 votes
    10y

    Thank you all for your analysis and advice on this matter.  

    Will be posting some questions/thoughts in a little bit.  

    0Reply
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