Should i walk away from this?

Question

3 story - 3 Plex all rented $2100 gross rents

currently under contract at $120k - electric separate metered but heat is owner furnished at about $3500 a year; Extra garage bays previously thought to allow for $600 extra cash flow per month from separate building in back but home inspection shows it is likely a tear down at some point in the near future.

Home inspection revealed significantly more repairs than expected

• Roof replacement (expected) - not a simple roof so it will be expensive
• Electrical (knob and tube) but panels all 100 amp
• some foundation issues
• 2nd floor fire escape deck and wood steps replacement required
• 2 chimney tear down, 1 repair
• water heater inadequate (50 gallon for all 3 units)
• other repairs that add up quickly
• Interior of units is decent condition

I am debating between going through with it if the price comes down to mayb 100k but not sure if this is too much wrong to make the numbers work

ARV is 160-180k

Any thoughts on this?

Thanks,

Mike

Jeff Bridges · Answer

Are you prepared to handle 50-60k in immediate repairs to address the repair list you provided? (this is just a ballpark figure from someone whose done only 6 rehabs) does 120 plus 50k in repairs (170-180 initial investment) still make the deal worthwhile to you? Will it appraise for 180 or higher so you can be in a position to refinance to get back 80% or more of your initial investment? What does the cashflow look like when refinanced after repairs for 170k or 127k (75% LTV). sounds like there is alot of deferred maintenance and the deal is being sold based on its current net cashflow and not factoring the deferred maintenance. Further, the interiors are already rehabbed, so your potential rent upside following the repairs will be limited. This sounds like a really old property if it has knob and tube. Multifamily is really overvalued in the DC metro area and usually not a good opportunity given how few there are to begin with.

Vivek Khoche · Answer

@Michael Cross- With limited information on the post I will pass. If you think it's a deal then answer to yourself why it is not a deal for current owner. Numbers is fifth grade math.

Good Luck

Vivek