Tri-Plex Deal or No Deal

31 Replies

Hello BP Community!

I'm just getting started in reel estate. Been ramping up on education & learning as much as I can over the past 4-5 months. I'm starting to settle in on a specific property and this one came across my lap today. I understand everyone has different opinions and there are lots of variables in real estate, but I'm trying to familiarize myself with what a good deal looks like. 

Here's the numbers, curious everyones thoughts on if they would/wouldn't take the deal and why/why not.

Tri-Plex

Listed for $130,000, verbal offer that they would accept at $110,000

Rental Income

Unit A: $650

Unit B: $650

Unit C: $650

Total All Units: $1950

Expenses

Mortgage: $500/mo (20% downpayment, conventional 30-year fixed loan @ 5.5%)

Property Management: $195/mo

Vacancy (8%): $156/mo

Property Tax: $150/mo

Maintenance: $90/mo

Utilities: $500/mo

Insurance: $90/mo

So by my estimation, it's cash flowing for about $270/month. Realtor says the rent is kinda low and could charge about $700 per unit, but I'm trying to be conservative with the numbers. What are your thoughts on this and what realistic things could make this a better deal?

Run the numbers on a 15yr loan with 25% down and increased rental rates, you'll get a lower interest rate and increase your chances of FI/RE at a younger age. 

Just a thought, is it possible to install separate meters so that the tenants can pay their own utilities?  If so, would be a pretty good deal IMHO.  If not, perhaps you can build in a bill back for their share of the utilities instead of increasing the rent?

Hi Caleb,

Why don't you charge the tenants for utilities?  My tenants pay for their own utilities in Dallas Ft Worth market.  Hows the area?  Rent per unit looks pretty sweet given the price.

Overall this seems like a great deal. Just missing cap ex. If everything is fine mechanically and no updates are needed I would go ahead with it. Make sure you do your due diligence period to inspect for any upcoming problems 

Maintenance should be 8-10%

Capex should be 8 - 10%

And you should get the utilities separated.

@Caleb Godsey Looks like it has the potential to be a good deal. What utilities are you paying? Do the tenants pay any? Have you looked over the leases? Have the tenants been there long term? I personally calculate vacancy at 10% and repairs at 5%
Originally posted by @Joshua Schoer :

Just a thought, is it possible to install separate meters so that the tenants can pay their own utilities?  If so, would be a pretty good deal IMHO.  If not, perhaps you can build in a bill back for their share of the utilities instead of increasing the rent?

 So I'm curious if you know average costs of this. My guess is that it's a bit pricey to do this and potentially not worth the investment but it is something I've thought about. I believe rent factors in the fact that landlord pays for utilities, so I think rent would have to go down a bit if they paid for utilities. Kinda evening things out probably.

Any additional thoughts or experience with situations like this?

Originally posted by @Kyle McKnett :
@Caleb Godsey

Looks like it has the potential to be a good deal. What utilities are you paying? Do the tenants pay any? Have you looked over the leases? Have the tenants been there long term?

I personally calculate vacancy at 10% and repairs at 5%

 I'll need to get a copy of the lease and financials. This is a good reminder to make sure I do more due diligence. I believe electricity & water are what I would be paying. Supposedly rent is higher than usual because utilities are included. 

As far as rental period, not quite sure how long the tenants have been there, although historically because of several churches in the area, the home generally has a very low, if any vacancy rate. But the area in general is about 8% vacancy, which is where I got that number.

Originally posted by @Justin Aguaze :

Overall this seems like a great deal. Just missing cap ex. If everything is fine mechanically and no updates are needed I would go ahead with it. Make sure you do your due diligence period to inspect for any upcoming problems 

 In your experience what are some problem areas that you would look for while inspecting the house?

Originally posted by @Lucia Rushton :
@Caleb Godsey are you putting anything away for major repairs ?

I don't know if I factored in major repairs, just a monthly maintenance of $90 I believe. CapEx is something I should consider.

Originally posted by @Jared Skov :

Run the numbers on a 15yr loan with 25% down and increased rental rates, you'll get a lower interest rate and increase your chances of FI/RE at a younger age. 

 What's a typical 15 yr rate that you see? Do you know any lenders in the Austin area?

@Caleb Godsey Is that $500 a month utilities a real number? That seems really high. It appears you will not be living in the triplex. Are you sure you can even get a 30 year mortgage for an Investment property? What is your area like for vacancy? I estimate 3% for vacancies. Some are saying 10%?! I’m actually running at 0% vacancy for quite a while in my area.

@Anthony Wick , the $500 number was from the current owner. She mentioned she pays on an average of $490/month for all three units. I know Texas usually has higher utilities because of the heat...know from experience being an Iowa native myself. (I see you're from Ankeny). 

I think the vacancy will probably be more like 3% or less, but just incase, factoring in the areas average. 

Originally posted by @Caleb Godsey :
Originally posted by @Justin Aguaze:

Overall this seems like a great deal. Just missing cap ex. If everything is fine mechanically and no updates are needed I would go ahead with it. Make sure you do your due diligence period to inspect for any upcoming problems 

 In your experience what are some problem areas that you would look for while inspecting the house?

 A general inspection of the home, ie. AC unit, foundation, roof. Also if the inspector brings up possible termite damage, then to have a individual termite inspector come in and look at the property. 

@Caleb Godsey Your numbers are correct:

However, you are missing CapEx reserves (5-10%) - consider Repairs and CapEx at 10% of rent, your cashflow gets cut in half:

Make sure to account for all these expenses when evaluating an investment:

1) Mortgage

2) Mortgage insurance (PMI or MIP) or FHA Risk base

3) Property Taxes

4) City Taxes

5) HOA (Home Owner's Association) Dues and Fees and Assessments

6) Insurance

  • Property Hazard Insurance
  • Flood Insurance
  • Earthquake Insurance
  • Umbrella Insurance

7) Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%)

8) Utilities (you’ll have some or all of these if your tenant is not covering them and/or during vacancy)

  • Water § Sewer § Garbage
  • Electricity
  • Natural Gas
  • Propane

9) General Maintenance (usually 5%)

  • Upkeep § Landscaping
  • Snow removal
  • Repairs
  • New Appliances

10) Capital Expenditures (usually 5%, higher is the property is old and obsolete, less if fully rehabbed and all mechanicals and roof are new)

11) Property Management (8%, even if you self manage, your time still has value and there might be a time when you'll want to be completely hands off or you'll not be able to do it, vacation, retirement, etc.)

  • Renewal fees
  • Office Supplies (e.g. stamps, envelopes)
  • Software
  • Gas/Mileage
  • Advertising + Payroll

12) Lawyer/Law office/Legal fees

13) Accounting/Bookkeeping/CPA/Tax preparer/Tax advisor

@Caleb Godsey If that was in my area I'd be on it. Great advice and responses above. Get a rent roll, leases and financials, and have it inspected by a licensed pro. Make sure you know what you are due at closing and get that...........security deposits and last months rent. All the best.

@Caleb Godsey

Set some money aside for CapEx. (New roof, HVAC, etc.)

I would think about having the tenants pay the utility bills. That would increase your cash flow and give you extra money to put aside for CapEx.

Part of my analysis is location.  Austin Texas is generally good, but some smaller towns in Texas have less appeal.  Second, make sure you get the property properly inspected and understand what capital expenditures might be coming up. 

@Caleb Godsey the utilities seem like the only killer; personally i would want to get $100-150/unit in cash flow...based from my experience with multis; like multis tho; the cash on cash return doesnt seem great; it would really depend as well on the cap ex & overall condition of the property/expected repairs; good luck!
@Caleb Godsey as everyone already mentioned, add CapEx. I usually do 5%, unless the property seems like it needs a lot of work. After you deduct ALL expenses @Brandon Turner usually recommends $100/month per unit in cash flow, so you should look for $300/month for a triplex. Try the rental property calculator! I‘m hooked! It’s pretty cool and you can play around with different purchase prices and expenses to see what would make it a good deal. I would also recommend getting prequalified ASAP so you know what you can purchase and have more realistic numbers. Plus it shows sellers that you’re a serious buyer. Good luck!
  • How many bedrooms? Do units have backyards? 
  • if property is in Austin sounds like no brainer
  • i personally manage my own units not sure if your first investment i believe no one is watching out for my money like i would.
  • my wife and i found everything online for our state to property manage. In my experience when tenants see a face to building and realize i care about my buildings it sets a precedent. 
  • hopefully this helps 
  • Good luck Cesar Cortesandsonproperties.com 
Seemed like a fair deal till you mentioned you got 500 coming out for utilities each month . In my area I would pay half that price here for a triplex and get similar rent so it’s nothing to get excited about for me anyway .

@Caleb Godsey Shop multiple lenders (at least 3), use their quotes against one another to see who can EARN your business. You're probably mid-4's or lower on an owner occupied MFH 15yr loan. It's all personal preference, there's an argument to both sides, but in this specific scenario, run the numbers of both, I like an investment being halfway paid off at 7.5yrs instead of 15...

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