Multi-Unit House Deal?

Question

Hello All,

I am new to multi-unit rentals. I have done single family homes but I know that with more tenants come more trouble. The deal I am currently looking at is as follows:

9 Unit House with rental income totaling $5150/mo (at current pricing with current tenants)

They are asking $300k which doesn't seem too terrible.

Any input into this deal or into rental a multi-unit older house would be greatly appreciated!

Thanks,
Ryan

Joel Owens · Answer

Just on numbers.

5,150 by 12 months = 61,800 gross expected rents

If landlord pays no utilities  the divide by 50% assuming no immediate repairs needed.

61,800 /2 = 30,900 = 309,000 sales price at a 10 cap.

If landlord pays water etc. then 60% costs = 37,080 costs = 24,720 or 247,200 at a 10 cap for sales price.

Remember to study the rents hard. If the seller is charging those rents but giving credit for waived security deposit or half or full months off first rent then that's not really the rent rate.

Also the seller could have charged those rents when the units where newer shape years ago and now the tenants slow or late pay or a recent foreclosure  in the area has made rents come down. Now the tenants want upgrades or they are leaving upon renewal to the other place for cheaper money.

If there is work to do to the units then you will need to deduct the CAPEX off for your offer price. So if inspection reveals immediate 30k of repairs in the next year then deduct from say 247,200 to arrive at a 217,200 offer price.

Many more variables and I can go on forever but this gives you the basics.

Ryan Smallegan · Answer

Thanks guys, this is a good start for me to go on. I will post more deal details if I decide to pursue it further!

William Bannister · Answer

Seems a bit shocking no utilities to pay considering 9 units in a sfh. 
  There are no common areas? like a laundry or ect halls?Also you have 9 meters for electric and heat or is it a boiler for whole building? Are the water being metered separably or is it all on one meter? Those questions answered with make it easier to give you my thoughts on a good price to offer on this property. I like to compare other apt buildings in the ares. 
   The other aspect that made me wonder was how come no repairs on this building is this brand new construction or less then 15 years old? If the building is over 15 years old functional obsolescence is a matter of fact that happens to all apt buildings. The age of roof,windows, carpets,water heaters,furnaces,sinks,disposal units,repairs to appliances and structural as well as lot maintenance like fence repair or ect.
  I will skip daily management costs and assume u will self manage. The other aspects of occasional contract work or things like pest control or lawn care, insurance and another 10 items it didnt mention ect are other on going costs are things to think about on an apt building over 4 units . 
  A common thing to do is the eraser syndrome when trying to come up with a figure of what you can pay for an apt building. Be very careful with due diligence and dont get eraser syndrome when trying to come up with costs to run an apt building. The average older apt building requires 45% of gross to run its operation and pay its bills not including debt service. I know people think they are genius at management but dont think your going to reinvent the wheel in property management since its been a business for about 3000+ years. 
   I dont want to discourage you but help you get numbers together so you dont pay too much. Now is a great time to own apts. although I would argue its always a good time to own real estate especially once its paid for;)
   Also one more question in the details what are the size of apts 1/2/3 bedrooms. 
    Are you planning a construction loan on this apt building? or will repairs come out of pocket. Just another thing to think about which makes having capital reserves in place important