Newbie with a 12 unit under contract.. Is this a deal?

38 Replies

Good Evening Bigger Pockets Family, 

My name is Niyi and compared to many of you i am a new investor. I purchased my first property in December of 2016 via a househack and i now have a 12 unit deal under contract!! Below is the information i have acquired thus far and a link to the bigger pockets analysis that i ran:

All Units are currently being rented to Section 8. I was told this is not a mandate, the current owner just prefers subsidized housing. This is a 3 property deal with each property housing 4 1 bedroom units.

AM i missing something or is this a deal? Any and all help is welcome. 

Are you sure your expenses are correct? A lot of them seem high to me. Granted I don’t know your market. Over 100/Mo per unit on water? 10% for PM? Is there a value add component or are you just buying cash flow? What’s the upside on this? I don’t think BP calculators are enough to analyze MF deals. Have you thought about buying Micheal Blanks SDA? I think it’s worth the $129 fee to help you understand how to underwrite MF. I won’t buy MF without a value add upside.

Well if you are calculating expenses high and they turn out lower, that’s a good thing. The owner might have preferred section 8 due to the “if they mess up they get kicked off” or guaranteed $$.
Good luck!
P.s. how do you like medical sales?? I’m an RN and going to NP school- heard about sales after

Are you buying these on 3 separate loans? Because a commercial lender isn’t going to do 30 year fixed financing.

How are you financing this purchase? If you are buying more than 4 units it’s commercial and usually it’s more than 15% down and the length is less than 30years.

Also the cash flow is low, for the purchase price with section 8 tenets, unless there’s a value add strategy. The taxes seem really low, is the taxes for all 3 together or just only 1 building? after your purchase the taxes may go up.

@Lee Ripma  

Expenses - I over-budgetted for certain items (i.e. Water and PM) just to be safe, and i'm in the louisville kentucky market very common for landlords to pay water. I manage my triplex using the Buildium pro system and will add this units to that management software as well. I budgeted the 10% just in case i want to move to property managment in the future (my actual costs to manage myself will be ~$150 per month).

Value Add - One of the units is currently vacant and I believe with minor updates to inside of units and getting regular tenants into the property that i can average $625 per unit bringing the income to $7500. I made the changes in the updated analysis below, please let  me know what you think. (also changed the loan from 30 years to 25, speaking with bank today to get exact numbers on what the loan would look like).

Thank you for the MIcheal Blanks tip! I have not, but will look into that today $129 is nothing compared to this being a good deal or not. 

@Nicholas Scatton

Thank you for taking a look Nicholas! The tri-plex that i house hacked is literally a 15 second walk to these units (Please see image below). The area is up and coming, and this owner does section 8 housing simply out of preference. I have one 1-bedroom in my triplex that pulls in $800 a month. Granted i've made updates and my unit has a washer/dryer in it, i believe if updates are made to this property i could get average rents up to $625 per unit ($7500 Total). Also, one of the units is currently vacant.  

@Bethany Rankin Yes to both! I'm trying to calculate expenses high just to be safe, and i confirmed that the owner does have a preference for subsidized housing. Considering i own the tri-plex just up the block i feel comfortable with the areas recent improvements. 

I have two RN's in the family, much respect for your profession!! I love medical sales, and the RN's that are able to make the transition to the business side excel at the company i work for. There are multiple avenues to getting into this as an RN, and i would be more than happy to discuss this in detail with you! Please feel free to private message me your number and we can setup some time to talk. 

@Caleb Heimsoth  

The current owner is selling this as a package deal for 499K. Will be talking to the commercial lender today to see exactly what the percentage down/years fixed would be, thank you for the heads up on the 30 year. I updated the analysis below to include what the current rents are and a 15% down 25 year mortgage. Fingers crossed i can get this from the lender. Also, i believe i can get the rents up to an average of $625 across the board (please see second analysis below).

Analysis with current rents and 25 year financing

Analysis with Future Rents and 25 year financing 

@Tony Mai  

Thank you for the heads up on the taxes! I will be using Bank financing and i have a local bank in Louisville that is investor friendly with the downpayment allowing people to put down as little as 10% on the downpayment. This is three 4-unit properties being sold as a package deal for 499K.

You are 100% correct on the 30 years, i lowered to 25 in the pictured analysis below and bumped the taxes up to 5000 (1% of purchase price) for all three buildings. One of the units is currently vacant and i believe that for this area with minor updates i can pull in $625 per unit bringing the total rental income up to $7500.

Analysis with current rents, updated financing, and higher taxes 

Analysis with Market Value rents, higher taxes, and updated loan info 

@Niyi A.

 In general, from reading many BP posts over the years, most people seem to aim for a minimum of $100/door cash flow per month.  Even after your plan of increased rents, this deal doesn’t seem to get there.  What am I missing?

@Niyi A I'm also a small MF investor in Louisville, looking at a 12 unit myself right now. I agree that the water looks high, maybe double what I'd estimate. Taxes look better now (I use 1.2% of purchase when estimating so I'd go a tad higher.) But the financing is the big question. I was seeing 80 LTV, 20 year amortization, and about 6.5%.

All that said, without knowing more I would push for a lower price on a what sounds like a likely C class building in that area. Have you checked per unit prices on similar sales around there? 

Also, If you're getting terms like you mentioned (90 ltv, 5.5%, 25 yr a ort), please let me know what bank you're using and who I can contact there! Much appreciated! 

Ryan Weddle 

I’ve found small MF in Louisville is hard to cash-flow. Everything is simply over priced in my opinion because of how many investors and because it’s a hot sellers market. I don’t own any propeties in LVille I’m speaking only from crunching numbers. And it’s difficult to raise rent because there are so many other multi family housing available. These investments are a good place to house hack or park money so you don’t really lose any thing or make anything. 

The only thing I see in your analysis that causes me to question is your lending. If you have an investor friendly bank willing to accept as little as 10% down on a 25yr loan please introduce me. I don’t have extensive experience with bank lending but to me that seems too good to be tried. 

Best of luck and I think of managed correctly and kept at full occupancy you’ll do alright. In my opinion LVille is a tough market. 

Hey Niyi I know this area really well it is up and coming. Please continue to do your diligence and inspect. Repair and upkeep will be a huge expense due to Section 8 inspections and regulations. Also, self managing will very difficult. Price seem a little high. I love the terms of the loan 10% down/25yr. What lender are you using?

Seems high when you break it down by unit. 530k/12 =$44,166 per unit. Pulling hopefully 625 (not quite 1.5% rule). And if you aren’t making at lease $100 per door I would recommend you reevaluate the deal or try to get a lower price on the purchase. It a lot of cash to tie up for such little return. As everyone else has already said financing is going to be the issue. 

Just run you number over and over and try to fine tune the financials to be sure you are getting a good  deal 

@Niyi A.

As others have said, make sure you talk to a lender on this to get the terms. In my market on something like this would be 20%-25% down for a 20 year am 5.75-6% or MAYBE 25 year am with the similar terms. 

Certainly model the upside. What will it cost to get the rents up to higher levels? Where is that money going to come from? If the area is up and coming and you can get a new tenant base that pays higher rents now or in the future then that is potentially a good deal the way I think of good deals. My goal would be to increase the value based on cap rate while still getting cash flow. What is the cap rate for that deal? What *should* the price be based on that cap rate? What could you bring the value to based on that cap rate? I would think about it more like that, but everyone has their own way of doing these things. Again, the BP calculator isn't really robust enough to handle this stuff! 

@Mark S.  

No Mark, you are on par. Ideally i would want $1200 per month and while i manage the property myself (through property managment software) i would still be pulling in $1200 per month in cashflow. 

I overestimated on water bill just to be safe. More information is still coming in on the property and i am updating the analysis as i get the hard financials.

@Ryan Weddle Thank you for the tip Ryan! I just raised the tax estimate to 6000 (1.2.%) and lowered my water estimate from $1300 to $900. I have requested Actual utility bills and should be receiving them tomorrow. As soon as i have them i will update the analysis and repost on here. 

Yes i would agree that this is C class, more information came through today that could aid in the effort of pushing the price lower. It was unclear before, but owner is currently paying all utilities which drastically changes this analysis. Waiting on Actuals to update analysis. 

Just heard back from lender and I can get 15% down, 5.16% interest, 20 year amortization on 10 year fixed.  If you want their contact, please send me a Private Message and i will send you their contact.

@Ali Hashemi

I hear you ALi. I purchased my first investment property less than 40 steps away via a househack so this process has been completely different. I just heard back from the lender today on what they can do - 15% downpayment, 5.16% interest, 20 year amortization on 10 year fixed. If you want their contact, please send me a private message and i will send it to you.

@Lonnie Williams

7 of the 12 units leases end this year and the goal would be to complete minor upgrades (paint/appliances/cabinets) and flip those units into regular tenants. I would then work to flip the other section 8 units as they turnover in 2019. 

I spoke with lender today and they are able to do a 15% down, 5.16% interest, 20 year amortization on 10 year fixed.

@David D'Errico

Thank you for the solid advice. I have requested utility bills and narrowed down the actual financing. I should have more info tomorrow and i plan to rerun the numbers and post the on here again.

Major item that just popped up, is that the owner currently pays all of the utilities which changes things significantly. 

@Niyi A. nice terms! It sounds like you’re doing your due diligence! I think you can’t go wrong as long as you’re getting all the information. Never hurts to ask for lower price based on new information. Best of luck!