Is this a good purchase?

Question

Hi All RE Gurus,

I and my partner are trying to put an offer on a 4-unit in Ohio.

Purchase Price : 230K

Down payment: 57,500

Repairs: 15K(All the units are currently rented. But want to add this)

We want to do 15 year mortgage. Total expenses would be ~2322(5% capex, 5% vacancy, 6% mgmt, $100 Insurance)

Rent: 2800

Cashflow: ~480(It goes up to ~800 if it is a 30 year mortgage).

Do you guys think this is a good deal or I am missing anything in my analysis.

Thanks,

Sastry.

Sastry Konduri · Answer

@Kevin Hunter Thanks for the detailed post! I did talk to a PM but did not speak to an insurance yet. Yes 15K is the rehab cost although there could be none.

I think Cash on cash is not making sense to me based on you analysis.

Kevin Hunter · Answer

@Sastry Konduri, my two cents.  Your CAPEX and vacancy are too low.  They will be closer to 10% each.  Maybe not in year one, but eventually, and you want to plan for that.  Also, I imagine you have already been talking to a PM, because that number looks low also, but I assume you have already agreed to that price with one.  Also, I didn't see any monthly repairs programmed in....You should plan for 10% each month of those as well.  I believe the repairs you mentioned were actually rehab costs correct??

My numbers are below:

Purchase Price : 230K

Down payment: 57,500

REHAB: 15K(All the units are currently rented. But want to add this)

Principal, Interest and Taxes: $1574 ( I came up with this number based on your post.  I took the total expenses you mentioned and subtracted out the capex, vacancy, management and insurance)

CAPEX: $280 (10%)

Repairs(toilets, sinks, floors, appliances, electrical, etc..): $280 (10%)

Vacancy: $280 (10%)

Management: $168 (6%)

Insurance: $100 (to be honest, this seems really low also, but I again assume you have already priced this out.  I have a four family and the insurance is over $200 a month)

Total Payment: $2682

Cash flow: $118

Based on those numbers, it still looks like an ok deal as long as you are ok with $30 per door.  I think it might make more sense to go with the 30 year note on this one for the cash flow.  You can always pay it down sooner with double payments if you really want to but at least then you are not locket into it.  You will get thousands of opinions on that from this site, so stand by.......

If you haven't already talked to a PM and an insurance broker about those estimates, I would do that right away.  That insurance number alone could wipe out all cash flow on the 15 year note if that was just a guess on your part.  Again, no assumptions, just a suggestion if you haven't done it already.

Lastly, I didn't see any utilities programmed in.  You have likely have some common areas.  Also, what about landscaping and snow removal?

Good luck!!

Sastry Konduri · Answer

I will PM you Ashok.

Ashok S. · Answer

Hard to tell without comps and rent ratios. PM if you wish not to disclose more details.