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Wendy Carpenter
Pro Member
  • Yelm, WA
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Am I analyzing this property correctly? Worth half of ask price?

Wendy Carpenter
Pro Member
  • Yelm, WA
Posted Nov 13 2017, 18:29

I'm new-ish to REI, with just one SFR so far. I'm now looking to expand into multifamily (with BRRR!). Bear with me, this will take some length for explanation.

I went driving for dollars and sent out four letters. About a week later, I got a call back! It was an older gentleman who said he was actually going to probably list the property in about a month or so. He said I could take a look first! He did give me the caveat that he's a RE broker, but not really doing anything with it, just for family and friends. He is thinking of selling because his wife has some health problems and they are just wanting to consolidate.

The house is in a pretty stagnant area of Washington State, very much similar to Brandon Turner's Aberdeen. I'm looking to buy for cashflow more so than appreciation. It is an 1895 built beautiful Victorian-era home built by one of the original founders of the town. It was turned into a fourplex in the 1970s. It was once a very nice place, but it has fallen on some rough times and has a LOT of deferred maintenance. It's been “professionally” managed, but you wouldn't know it.

He's a very, very nice man. I spent about 2 hours with him talking about the house and investments. He had this place on the market (himself as the agent) in 2015 for $179,500 and when I asked what happened with it then, he said he just didn't really market it, as he wasn't extremely motivated at the time.

Total sq ft is 2,692. At the very minimum on the exterior, the house needs all new windows (I think they are original. Yikes.), quite a bit of siding repair, and paint. It is in rough shape. Roof was done 10-12 years ago. He had only the power meters redone a few years ago, so electrical is likely knob and tube throughout. The pipes have not been redone at all as far as I can tell. At a minimum, I think this place needs at least $50k in work to stay standing, and I think that's me being very conservative.

All of the interior hallways and units have not been updated since probably the the 70s. It is as close to a D class property as you can get in a smaller town, but is surrounded by some good homes in a nicer neighborhood. It's very likely the worst place on the block. The fixtures, floors, walls, etc. are all very worn, beat up, and in a state of neglect. Would need to be all replaced to command any higher rent. Old couches on the front porch, no pride in the state of the place whatsoever. I definitely wouldn't live there!

Here's further details (market rents are according to the management company):

All units are 1bd/1bth

Unit1 rent: $480 (market $575)

Unit 2 rent: $410 (market $410

Unit 3 rent: $425 (market $575)

Unit 4 rent: $465 (market $465)

Total rents of $1,780

No tenant has been there longer than 3 years and one of them has been late on rent 25 times.

Owner pays W/S/G, some electrical, some gas, and “gas leases” for a total of about $4,900/year for utilities (I am unsure if it would be possible to submeter or bill back to the tenants, water and sewer is the biggest expense in there at about $345/month).

Here's what I got running it with the BP Rental Calculator (as self-managed):

-Purchase price of $160,000 (I did $200k as an ARV price, but it might be higher with a LOT of work)

-20% down: $32,000

-Amount financed: $128,000

-4.5% interest: P&I of $648.56

-Capex: 7%: $125/mo

-Maintenance/repairs: 7%: $125/mo

-Vacancy 5%: $89/mo

-Property taxes: $167/mo

-Utilities: about $400 mo

-Insurance: $80/mo


Total monthly expenses: $984.87

Income: $1,780 (income) - $648.56 (mortgage) - $984.87 (expenses) = $146.57/mo cashflow and 5.17% COC

These numbers are all without doing any of the major work that will be required to keep this place standing. The owner is in his 80's, and because he's owned it for almost 40 years, he has no mortgage on it and sees his roughly $800/mo cashflow on it without remembering that someone who buys it will be paying a mortgage.

He offered to carry the contract on it for 5 years, but even then, I don't think I can make the numbers work. He was very kind and said to make him an offer and he's “in a selling mood,” but even at $100k (which I think he would feel insulted), I don't think the numbers work. Even with rents at market value, it doesn't add much to the bottom line.

I'm anxious to get started on my REI adventures, but I don't want try to put a square peg in a round hole (my bank account).

Any thoughts would be appreciated! I don't think this property will work for anyone if the purchase price isn't much, much lower.


If you happen to still be reading after all of that blabber, THANK YOU! I wanted to make sure I got all the details in. 

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