Should I buy it? Please advice me...

15 Replies

I am new in this  and looking for some investment multiplex properties. Found one which is a triplex in SE Portland, OR. Asking price is 480000

Rental is about 3400/month. Tax is 8K/year. 

Built 2000. Good condition.

Is it a good buy? I need some suggestion and advice. 

There are way too many outstanding questions for anyone to give you advice on that deal. You need to ask for a rent roll from the property and a full stack of historic expenses and see if the numbers make sense. 

It could also look amazing in paper but if all the tenants are late on rent and need to be evicted then that may become a horrible deal in real life.

Originally posted by @Jon Reed :

There are way too many outstanding questions for anyone to give you advice on that deal. You need to ask for a rent roll from the property and a full stack of historic expenses and see if the numbers make sense. 

It could also look amazing in paper but if all the tenants are late on rent and need to be evicted then that may become a horrible deal in real life.

Thanks Jon! As a newbie this is a valuable advice. 

Originally posted by @Todd Douglas :

Yeah, the proof that the property is actually performing and real proof of expenses will definitely help

 Hey Todd thanks for the input. But how will I determine the performance of the property? What do you mean by that?

Is it like how much is real rent? What are the expenses like who pays sewer, water and other utility? Please elaborate a bit.  

@Tahmid Kazi Yes, the documents mentioned(rent roll, expenses) by @Jon Reed will help you determine real numbers. Its just safer as the property may be leased to make 3400/month, but one tenant could be behind a ton of months, or maybe not. Just hedge your investment as best you can

Also, I know many use some variation of the 1%-2% rule as a quick check to see if its even worth looking at a property. This property is not even doing 1% currently. So unless the current owner has rents far below market and you are looking as a value add deal, or you are going to get owner financing and good terms the performance is currently below what many will consider. 

Originally posted by @John Viel :

Also, I know many use some variation of the 1%-2% rule as a quick check to see if its even worth looking at a property. This property is not even doing 1% currently. So unless the current owner has rents far below market and you are looking as a value add deal, or you are going to get owner financing and good terms the performance is currently below what many will consider. 

Hey John Thanks for the input but any reference to calculate the variation? I don't know what is that. I know caprate, GRM but not this 1%-2% that you are looking. Thanks again.

I would say that this property does not look great when you get into the numbers a little more. If you are working with a conventional loan, your mortgage payment eats up more than 50% of your rent. Then factor in taxes, insurances and roughly 30% saved for reserves, you are not looking at much cash flow. Then after the fact, we have no idea if the area, tenants are good. Do tenants pay utilities? That is a big swing, how much do you pay for city gas, water and any other fees. Any HOA's involved? Lots to consider, would say rent needs to go up regardless.

Originally posted by @Calvin Ozanick :

I would say that this property does not look great when you get into the numbers a little more. If you are working with a conventional loan, your mortgage payment eats up more than 50% of your rent. Then factor in taxes, insurances and roughly 30% saved for reserves, you are not looking at much cash flow. Then after the fact, we have no idea if the area, tenants are good. Do tenants pay utilities? That is a big swing, how much do you pay for city gas, water and any other fees. Any HOA's involved? Lots to consider, would say rent needs to go up regardless.

@Calvin Thanks for your valuable input. In Portland, OR market I doubt you will find any property which doesn't eat 50% of your rent assuming 20% downpayment.  

After putting into calculator, this is what I got(assuming tenants pay utilities and a flat fee for water, sewer, garbage disp, area is good for renting out as it is close to downtown and highways and transit; Property is built in early 2000s.): https://www.calculator.net/rental-property-calculator.html?cprice=480000&cuseloan=yes&cdownpayment=20&cinterest=3.5&cloanterm=30&cothercost=3000&cneedrepair=no&crepaircost=10000&cafterrepairvalue=150000&ctax=8313&ctaxincrease=3&cinsurance=1200&cinsuranceincrease=3&choa=70&choaincrease=3&cmaintenance=1200&cmaintenanceincrease=3&cother=0&cotherincrease=3&crent=3680&crentincrease=3&cotherincome=0&cotherincomeincrease=3&cvacancy=5&cmanagement=0&cknowsellprice=no&cappreciation=3&csellprice=200000&cholding=20&csellcost=8&printit=0&ctype=&x=53&y=24


Originally posted by @Tahmid Kazi :
Originally posted by @Calvin Ozanick:

I would say that this property does not look great when you get into the numbers a little more. If you are working with a conventional loan, your mortgage payment eats up more than 50% of your rent. Then factor in taxes, insurances and roughly 30% saved for reserves, you are not looking at much cash flow. Then after the fact, we have no idea if the area, tenants are good. Do tenants pay utilities? That is a big swing, how much do you pay for city gas, water and any other fees. Any HOA's involved? Lots to consider, would say rent needs to go up regardless.

@Calvin Thanks for your valuable input. In Portland, OR market I doubt you will find any property which doesn't eat 50% of your rent assuming 20% downpayment.  

After putting into calculator, this is what I got(assuming tenants pay utilities and a flat fee for water, sewer, garbage disp, area is good for renting out as it is close to downtown and highways and transit; Property is built in early 2000s.): https://www.calculator.net/rental-property-calculator.html?cprice=480000&cuseloan=yes&cdownpayment=20&cinterest=3.5&cloanterm=30&cothercost=3000&cneedrepair=no&crepaircost=10000&cafterrepairvalue=150000&ctax=8313&ctaxincrease=3&cinsurance=1200&cinsuranceincrease=3&choa=70&choaincrease=3&cmaintenance=1200&cmaintenanceincrease=3&cother=0&cotherincrease=3&crent=3680&crentincrease=3&cotherincome=0&cotherincomeincrease=3&cvacancy=5&cmanagement=0&cknowsellprice=no&cappreciation=3&csellprice=200000&cholding=20&csellcost=8&printit=0&ctype=&x=53&y=24


The numbers start to look better here. I always overshoot my reserves and reanalyze them at the end of a calendar year. This allows me to put that money into other areas if needed. 

 

Hi @Tahmid Kazi , my thought is that if it cashflows right now it could be a good deal (not great deal).  You will have increased rents over the next few years in Portland and hopefully in 5-7 years you can refinance and pull your downpayment out.  The home run deals in Portland are based on application (forced or market) and not as much with cashflow.  Let me know if you have more questions.  

Originally posted by @Tahmid Kazi :
Originally posted by @John Viel:

Also, I know many use some variation of the 1%-2% rule as a quick check to see if its even worth looking at a property. This property is not even doing 1% currently. So unless the current owner has rents far below market and you are looking as a value add deal, or you are going to get owner financing and good terms the performance is currently below what many will consider. 

Hey John Thanks for the input but any reference to calculate the variation? I don't know what is that. I know caprate, GRM but not this 1%-2% that you are looking. Thanks again.

1% - 2% rule is a quick calculation, nothing fancy. Its rent/purchase amount  convert decimal to %

 3400 / 480000 = .007 (percentage in decimal form) x 100 = .7% 

This is not a true analyzation, but many use this as a reference to determine if its even worth analyzing depending on their criteria. Some say they want to be above 1% some want to be at 2%  or somewhere in between. 

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