Deal or No Deal? Potentially second small multi-family w/ numbers

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Deal or No Deal? Potentially second small multi-family w/ numbers

Ryan Hall
Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes

Potentially my second small Multi-Family in very hot market (Ada County Idaho, basically Boise and surrounding suburbs). 

Would you invest or wouldn't you invest? Please explain.

Location: right next to a nice University

Triplex condition: 7 yrs old in very good condition (all major systems in good condition).

These are Real Numbers, please excuse the spreadsheet, I'm an engineer: 

Just looking to expand my knowledge base so no wrong answers and please don't hold back.

Appreciate your input!

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Joe VilleneuvePro Member
Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
7y

I'm going to echo what everyone else said. Bad deal...not a poor one, a BAD one. 2.5% COCR is awful. Even though it is better than that in reality when you add the subtracted $200/month for repairs/CAPEX/etc...(why do this? What is $2400 a year going to cover in this area? This is why using % for analysis can only result in illusions).

Using % for analysis means nothing, and it usually results in nothing but illusions (there's an echo in here...I think in addition to the one I mentioned in the beginning).  Here's another from this deal property example why:
1 - 2.5% (whatever that means) CoCR
2 - Here is what it really means.  CF of only $200+/month, or about $2700/year...AFTER, you spend $114k in cash.
3 - What it means = It costs you $114k to buy $2700/year.  

4 - Put another way. You don't make a profit until you recover all the cash you put into a deal. Combining #2 & 3 together, it means it will take you over 42 years (not a typo) before you recover your cash and start making a profit...assuming you never have to spend more than $2400 a year on repairs/CAPEX (sure...that's going to happen).

Stop using "%" as the conclusions in your analysis.  It does nothing but mislead you.  Use the actual "$".  Percentages are for the Stock Market...leave them there.

With that same $114k in cash, in one of my markets (and many others), I could use it as a DP (20%) on 5 - $100k properties (and keep $14k in CR), with each property having about $4k in CF/year.  That's a total CF of around $20k/year, and I would have spent less than you did on it.

Using the same analysis formula, it would take me only 5 years (not 42) to recover my cash.

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  • Don SpaffordPro Member
    Investor 路 Idaho Falls, ID 路 Member since 2016 路 935 posts 路 629 votes
    7y

    @Ryan Hall That looks like a huge amount of money to put down for such a small return. I personally would pass.

    3Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Don Spafford:

    @Ryan Hall That looks like a huge amount of money to put down for such a small return. I personally would pass.

     Thank you Don. How is the Idaho Falls market? Are you actively investing there or are you looking out of state?

    0Reply
  • Brian Garrett
    Real Estate Investor 路 Palm Beach County, FL 路 Member since 2017 路 3k+ posts 路 2k+ votes
    7y

    2.5% COC return? No thanks.

    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Brian Garrett:

    2.5% COC return? No thanks.

    Thank you Brian. What type of % COC are you seeing in your area or are you investing out of state? I've analyzed about 40 small multi-family in my area over past 3 months and this was best i've seen.

    0Reply
  • Darrin Taylor
    Rental Property Investor 路 Windsor, CO 路 Member since 2018 路 26 posts 路 21 votes
    7y

    Hi Ryan, I agree with the others. The return and cash flow are too low for such a large investment, and I would add that your numbers appear to be somewhat best-case scenario. For example, Repairs and CAPEX at only $1200/yr each for a property this size. If either of those gets worse, which is not unlikely over the next several years, then the numbers really get ugly. Boise is a great place, but I would not pursue this investment at that price.

    1Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Darrin Taylor:

    Hi Ryan, I agree with the others. The return and cash flow are too low for such a large investment, and I would add that your numbers appear to be somewhat best-case scenario. For example, Repairs and CAPEX at only $1200/yr each for a property this size. If either of those gets worse, which is not unlikely over the next several years, then the numbers really get ugly. Boise is a great place, but I would not pursue this investment at that price.

    Thank you Darrin. I understand Fort Collins area is equally great. Are you able to find good COC% there or are you investing out of state?

    0Reply
  • Darrin Taylor
    Rental Property Investor 路 Windsor, CO 路 Member since 2018 路 26 posts 路 21 votes
    7y
    Originally posted by @Ryan Hall:
    Originally posted by @Darrin Taylor:

    Hi Ryan, I agree with the others. The return and cash flow are too low for such a large investment, and I would add that your numbers appear to be somewhat best-case scenario. For example, Repairs and CAPEX at only $1200/yr each for a property this size. If either of those gets worse, which is not unlikely over the next several years, then the numbers really get ugly. Boise is a great place, but I would not pursue this investment at that price.

    Thank you Darrin. I understand Fort Collins area is equally great. Are you able to find good COC% there or are you investing out of state?

    You're right, the market here is very similar (I lived in Boise from 2000-2009). More expensive here, but otherwise very similar. I suppose it's possible to find good return here if you have great connections, but as a fairly new REI I've not found anything that I'm comfortable with. My focus is on Green Bay, WI where I've found you can buy for less than $100K and get positive cash flow. I'm fortunate that I travel there about monthly for work, so while it's out of state it's not inaccessible for me. I've also heard positive things about the markets in ID Falls and Pocatello, and saw there are some very knowledgeable BP folks there who seem to be great about sharing and helping the less experienced.

    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Darrin Taylor:
    Originally posted by @Ryan Hall:
    Originally posted by @Darrin Taylor:

    Hi Ryan, I agree with the others. The return and cash flow are too low for such a large investment, and I would add that your numbers appear to be somewhat best-case scenario. For example, Repairs and CAPEX at only $1200/yr each for a property this size. If either of those gets worse, which is not unlikely over the next several years, then the numbers really get ugly. Boise is a great place, but I would not pursue this investment at that price.

    Thank you Darrin. I understand Fort Collins area is equally great. Are you able to find good COC% there or are you investing out of state?

    You're right, the market here is very similar (I lived in Boise from 2000-2009). More expensive here, but otherwise very similar. I suppose it's possible to find good return here if you have great connections, but as a fairly new REI I've not found anything that I'm comfortable with. My focus is on Green Bay, WI where I've found you can buy for less than $100K and get positive cash flow. I'm fortunate that I travel there about monthly for work, so while it's out of state it's not inaccessible for me. I've also heard positive things about the markets in ID Falls and Pocatello, and saw there are some very knowledgeable BP folks there who seem to be great about sharing and helping the less experienced.

    Thank you Darrin. Appreciate your insight. ID Falls and Pokey would definitely be options I'd consider. 

    0Reply
  • Eric Mitchell
    Investor 路 ID 路 Member since 2019 路 41 posts 路 21 votes
    7y

    Boise is a pretty saturated market, if you are looking for investments close to home I'd consider this side of the state. Might not be as good of numbers as some out of state markets, but some of the best that I've seen in Idaho. If you're interested I can definitely help you out.

    1Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Eric Mitchell:

    Boise is a pretty saturated market, if you are looking for investments close to home I'd consider this side of the state. Might not be as good of numbers as some out of state markets, but some of the best that I've seen in Idaho. If you're interested I can definitely help you out.

    Thank you Eric, agreed. I may take you up on that. 

    1Reply
  • Jonna WeberPro Member
    Moderator
    Investor 路 Boise, ID 路 Member since 2011 路 1k+ posts 路 736 votes
    7y

    Hi Ryan - It all depends on your goals. It might make a great side investment and make sense for someone that has a student at college, especially if it is around Boise State.  I have worked with several BSU parents that also invest here.  For straight cash flow...it is extremely tight.  Good luck and look forward to meeting you soon! 

    208-608-4884Podcast Guest on Show #80
    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Jonna Weber:

    Hi Ryan - It all depends on your goals. It might make a great side investment and make sense for someone that has a student at college, especially if it is around Boise State.  I have worked with several BSU parents that also invest here.  For straight cash flow...it is extremely tight.  Good luck and look forward to meeting you soon! 

    Thank you Jonna, being considered for local straight cash flow. Kids are still a few years out from college. Look forward to meeting you as well! 

    1Reply
  • Christian Rojmar
    Austin, TX 路 Member since 2019 路 95 posts 路 59 votes
    7y

    Agree with everyone else on COC, Capex/repairs. Also see $0 in vacancy which seems extremely aggressive.

    1Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Christian Rojmar:

    Agree with everyone else on COC, Capex/repairs. Also see $0 in vacancy which seems extremely aggressive.

    Thank you Christian. What is a more reasonable monthly Capex/repair expense for a triplex (built in 2007, good roof, good hvac, good water heaters)?

    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y

    @Joe Villeneuve

    Ok Joe, pretty sure I know your answer but appreciate your reasoning!

    0Reply
  • Cole Raiford
    Rental Property Investor 路 Gulfport, MS 路 Member since 2018 路 113 posts 路 133 votes
    7y

    @Ryan Hall definitely a no for me. Cost is way too high for that rent amount. Look at other markets if you are investing for cash flow and get your returns up in the double digits.

    0Reply
  • Joseph High
    Specialist 路 Nashville, TN 路 Member since 2019 路 75 posts 路 50 votes
    7y

    @Ryan Hall

    It depends on what your strategy is. Here in Nashville (this is not a 100% analogous example) brand new construction for multi-family units is extremely expensive. It is very difficult for those properties to cash flow. However, the appreciation is very good for those properties.

    As I'm sure you're aware of, there's more than one way to make money in real estate. You've got cash flow, tax shelter, appreciation, and loan amortization. So, even though the cash flow on this property isn't great, is there another way you can make money on this property? Since it's located next to a university, do you think there will be above average appreciation when you sell the property? Is the equity you're building up worth more than just having that cash sit in your bank account for less than 2% APY (if you're lucky)? 

    From a cash flow perspective, it's not a great investment, but what are comps in your area cash flowing at? You said this was the best property you've come across in 3 months. As a point of reference, we're looking for a minimum 6% cash on cash return in Nashville investments. 

    Another thing to consider is that the building is 12 years old. A general rule of thumb is that you replace your HVAC system every 10-15 years and then the roof every 15 years. Not sure if the CAPEX expense was budgeted for those specific line items or just general CAPEX, but thought I'd put that on your radar. Since the cash flow is tight, and one of those systems goes out, do you have the reserves to fix it?

    3Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y

    @Cole Raiford

    Thank you Cole, other markets may be the answer. Boise market has gone a little crazy these past few years.

    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y

    @Joseph High

    Good post, thank you Joseph. You are correct that The property should appreciate above average due to location. Also appreciate your insight/reminder on capex.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
    7y

    I'm going to echo what everyone else said. Bad deal...not a poor one, a BAD one. 2.5% COCR is awful. Even though it is better than that in reality when you add the subtracted $200/month for repairs/CAPEX/etc...(why do this? What is $2400 a year going to cover in this area? This is why using % for analysis can only result in illusions).

    Using % for analysis means nothing, and it usually results in nothing but illusions (there's an echo in here...I think in addition to the one I mentioned in the beginning).  Here's another from this deal property example why:
    1 - 2.5% (whatever that means) CoCR
    2 - Here is what it really means.  CF of only $200+/month, or about $2700/year...AFTER, you spend $114k in cash.
    3 - What it means = It costs you $114k to buy $2700/year.  

    4 - Put another way. You don't make a profit until you recover all the cash you put into a deal. Combining #2 & 3 together, it means it will take you over 42 years (not a typo) before you recover your cash and start making a profit...assuming you never have to spend more than $2400 a year on repairs/CAPEX (sure...that's going to happen).

    Stop using "%" as the conclusions in your analysis.  It does nothing but mislead you.  Use the actual "$".  Percentages are for the Stock Market...leave them there.

    With that same $114k in cash, in one of my markets (and many others), I could use it as a DP (20%) on 5 - $100k properties (and keep $14k in CR), with each property having about $4k in CF/year.  That's a total CF of around $20k/year, and I would have spent less than you did on it.

    Using the same analysis formula, it would take me only 5 years (not 42) to recover my cash.

    4Reply
  • Joldzic Ognjen
    Anchorage, AK 路 Member since 2019 路 2 posts 路 2 votes
    7y

    @Ryan Hall sir good luck with future investing.

    Why are you paying such a high price for down payment? Cant you come up with some strategy that will allow you to pay less which will directly increase your COC?

    My wife and I personally purchased duplex (First investment) this march in Anchorage,Alaska. We went with 3,5% down for FHA and then worked with owner to include closing cost in price of the house so we dont have to pay for that up front.

    There are many ways you can help yourself out, it all depends how creative you are.

    Here I am being smart and advising you how to deal with investments and on other side I completed just one haha 馃槑馃槂 Im just making sure you鈥檙e not getting ran over with a deal.

    Excuse my English, its my second language ;)

    All the best!

    1Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Joe Villeneuve:

    I'm going to echo what everyone else said. Bad deal...not a poor one, a BAD one. 2.5% COCR is awful. Even though it is better than that in reality when you add the subtracted $200/month for repairs/CAPEX/etc...(why do this? What is $2400 a year going to cover in this area? This is why using % for analysis can only result in illusions).

    Using % for analysis means nothing, and it usually results in nothing but illusions (there's an echo in here...I think in addition to the one I mentioned in the beginning).  Here's another from this deal property example why:
    1 - 2.5% (whatever that means) CoCR
    2 - Here is what it really means.  CF of only $200+/month, or about $2700/year...AFTER, you spend $114k in cash.
    3 - What it means = It costs you $114k to buy $2700/year.  

    4 - Put another way. You don't make a profit until you recover all the cash you put into a deal. Combining #2 & 3 together, it means it will take you over 42 years (not a typo) before you recover your cash and start making a profit...assuming you never have to spend more than $2400 a year on repairs/CAPEX (sure...that's going to happen).

    Stop using "%" as the conclusions in your analysis.  It does nothing but mislead you.  Use the actual "$".  Percentages are for the Stock Market...leave them there.

    With that same $114k in cash, in one of my markets (and many others), I could use it as a DP (20%) on 5 - $100k properties (and keep $14k in CR), with each property having about $4k in CF/year.  That's a total CF of around $20k/year, and I would have spent less than you did on it.

    Using the same analysis formula, it would take me only 5 years (not 42) to recover my cash.

     Thank you Joe! Very much appreciate your analysis and breaking it down. I will attempt to implement your advice and convert from % to actual cash in my next analysis.  

    0Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Joldzic Ognjen:

    @Ryan Hall sir good luck with future investing.

    Why are you paying such a high price for down payment? Cant you come up with some strategy that will allow you to pay less which will directly increase your COC?

    My wife and I personally purchased duplex (First investment) this march in Anchorage,Alaska. We went with 3,5% down for FHA and then worked with owner to include closing cost in price of the house so we dont have to pay for that up front.

    There are many ways you can help yourself out, it all depends how creative you are.

    Here I am being smart and advising you how to deal with investments and on other side I completed just one haha 馃槑馃槂 Im just making sure you鈥檙e not getting ran over with a deal.

    Excuse my English, its my second language ;)

    All the best!

     Thank you Joldzic. Appreciate any well intended advice, especially from those that actually complete better deals like yourself!  Congrats and thanks again.  By the way, your written English is very clear.

    0Reply
  • Erik B.
    Rental Property Investor 路 Amityville, NY 路 Member since 2018 路 351 posts 路 441 votes
    7y
    Originally posted by @Joldzic Ognjen:

    @Ryan Hall sir good luck with future investing.

    Why are you paying such a high price for down payment? Cant you come up with some strategy that will allow you to pay less which will directly increase your COC?

    My wife and I personally purchased duplex (First investment) this march in Anchorage,Alaska. We went with 3,5% down for FHA and then worked with owner to include closing cost in price of the house so we dont have to pay for that up front.

    There are many ways you can help yourself out, it all depends how creative you are.

    Here I am being smart and advising you how to deal with investments and on other side I completed just one haha 馃槑馃槂 Im just making sure you鈥檙e not getting ran over with a deal.

    Excuse my English, its my second language ;)

    All the best!

     If he puts less down the monthly payment will be higher and will be negative cashflow.

    In short the asking price does not work with that Rental Income and makes it a bad deal for cash flow.

    1Reply
  • Ryan Hall
    OP
    Rental Property Investor 路 Tampa, FL 路 Member since 2019 路 74 posts 路 27 votes
    7y
    Originally posted by @Joe Villeneuve:

    I'm going to echo what everyone else said. Bad deal...not a poor one, a BAD one. 2.5% COCR is awful. Even though it is better than that in reality when you add the subtracted $200/month for repairs/CAPEX/etc...(why do this? What is $2400 a year going to cover in this area? This is why using % for analysis can only result in illusions).

    Using % for analysis means nothing, and it usually results in nothing but illusions (there's an echo in here...I think in addition to the one I mentioned in the beginning).  Here's another from this deal property example why:
    1 - 2.5% (whatever that means) CoCR
    2 - Here is what it really means.  CF of only $200+/month, or about $2700/year...AFTER, you spend $114k in cash.
    3 - What it means = It costs you $114k to buy $2700/year.  

    4 - Put another way. You don't make a profit until you recover all the cash you put into a deal. Combining #2 & 3 together, it means it will take you over 42 years (not a typo) before you recover your cash and start making a profit...assuming you never have to spend more than $2400 a year on repairs/CAPEX (sure...that's going to happen).

    Stop using "%" as the conclusions in your analysis.  It does nothing but mislead you.  Use the actual "$".  Percentages are for the Stock Market...leave them there.

    With that same $114k in cash, in one of my markets (and many others), I could use it as a DP (20%) on 5 - $100k properties (and keep $14k in CR), with each property having about $4k in CF/year.  That's a total CF of around $20k/year, and I would have spent less than you did on it.

    Using the same analysis formula, it would take me only 5 years (not 42) to recover my cash.

     Joe - one clarification is that the plan for this triplex is that it will be a very short term "buy and hold".  Hold would be 3 - 4 years.  Sell at that time with a separate but local 4plex and use proceeds to 1031 into more or 5+ multi family. Does that change anything in your above response?

    0Reply
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