Tri-Plex Deal or No Deal

Buying & Selling Real Estate
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Tri-Plex Deal or No Deal

Caleb Godsey
Austin, TX · Member since 2018 · 24 posts · 4 votes

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?

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Jared Skov
Rental Property Investor · Lanai City, HI · Member since 2018 · 64 posts · 70 votes
7y

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. 

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  • Jared Skov
    Rental Property Investor · Lanai City, HI · Member since 2018 · 64 posts · 70 votes
    7y

    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. 

    3Reply
  • Joshua Schoer
    Accountant · Jacksonville, FL · Member since 2016 · 52 posts · 24 votes
    7y

    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?

    2Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    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.

    1Reply
  • Lucia Rushton
    Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    7y
    @Caleb Godsey are you putting anything away for major repairs ?
    2Reply
  • Justin A.
    Rental Property Investor · Dallas, TX · Member since 2017 · 39 posts · 26 votes
    7y

    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 

    1Reply
  • Karen O.
    NYC, NY · Member since 2016 · 619 posts · 456 votes
    7y

    Maintenance should be 8-10%

    Capex should be 8 - 10%

    And you should get the utilities separated.

    1Reply
  • Kyle McKnett
    Real Estate Agent · West Chester, PA · Member since 2018 · 63 posts · 46 votes
    7y
    @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%
    1Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y
    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?

    0Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y
    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.

    0Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y
    Originally posted by @Justin A.:

    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?

    0Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y
    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.

    0Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y
    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?

    1Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y
    @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.
    1Reply
  • Caleb Godsey
    OP
    Austin, TX · Member since 2018 · 24 posts · 4 votes
    7y

    @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. 

    0Reply
  • Justin A.
    Rental Property Investor · Dallas, TX · Member since 2017 · 39 posts · 26 votes
    7y
    Originally posted by @Caleb Godsey:
    Originally posted by @Justin A.:

    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. 

    1Reply
  • Costin I.
    Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
    7y

    @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

    2Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @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.

    1Reply
  • Nathan Wankel
    Investor · Denver, CO · Member since 2018 · 57 posts · 30 votes
    7y

    @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.

    0Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    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. 

    0Reply
  • Chester Straley
    Real Estate Broker · Van Wert, OH · Member since 2018 · 26 posts · 15 votes
    7y
    @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!
    0Reply
  • Marine Palamutyan
    Member since 2017 · 17 posts · 4 votes
    7y
    @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!
    2Reply
  • Raul Cesar cortes
    Flipper/Rehabber · Member since 2018 · 20 posts · 10 votes
    7y
    • 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 
    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    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 .
    0Reply
  • Jared Skov
    Rental Property Investor · Lanai City, HI · Member since 2018 · 64 posts · 70 votes
    7y

    @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...

    0Reply
  • Lucia Rushton
    Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes
    7y
    @Caleb Godsey yes so rework your numbers and see where it puts you.
    1Reply
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