Triplex purchase after divorce - First property

[Craig Joseph]

Life has thrown me few curveballs so I'm just making sure my rationale is good here...

I am currently under contract for an ~2000 sq ft (total) triplex that consists of a 1br/1ba separate unit (700 sq ft) and a duplex comprised of a 2br/1ba and 1br/1ba. My plan is to live in the 1/1 for a year or two until I find something more permanent for me. I just finalized a divorce at the beginning of July and received my equity out of the previous house. It is in the neighborhood where I want to set up roots, and inventory is non-existent. Location is St Petersburg FL approximately 1 mile south of downtown and the USF St Pete campus. This neighborhood is extremely desirable and the property is located 3 blocks from a large, useable beach park along Tampa Bay.

This will be my first rental. I am handy with anything but electrical and like domestic projects.

Units are currently rented @ $1200/mo for the 2/1, $950/mo for the 1/1, and $1025/mo for the 1/1 standalone. To be closer to market value, rent should be increased to $1300/mo for the 2/1, $1100/mo for the 1/1 and $1200/mo for the 1/1 standalone. It will take approximately $15k in upgrades to justify this increase.

Purchase price is $380k. Appraised at $385k. Property was off-market when my agent found it. I qualified for a 30 yr FHA loan with 3.5% down @ 2.75% with a $2k lender credit. PITI is estimated at $2205/mo including FHA PMI of ~$220/mo for the duration of the loan (unless refinanced). Current cash flow is $3175/mo. Once I move into the unit my immediate cash flow will be $2150 with projected cash flow of $2400/mo once upgrades are completed and $3600/mo once I eventually move out in a year or two. Total out of pocket to close is $18,000.

Inspection was fine. Structure is block on slab. The neighborhood is mixed single family and multi family, with this property located on a more multi-family dominated street.

I have good job security, $88k base pay with an additional $15k in bonuses last year. I max out my mega backdoor Roth and Roth IRA and currently have ~$125k in liquid capital. Current net worth is $325k. My car is paid off, I have no debt, and terms of my separation agreement provide $525/mo for 3 years from my ex.

Short of hurricanes, I believe property values will continue to appreciate in this area in the medium to long term. Inventory is currently non-existent, quality of life is extremely high, and I speculate that COVID will drive demand for northerners moving south to a place they can be outside year round.

This is only my second property purchase (first multi-family), so I just want to make sure I'm not overlooking anything.

[Amber Stout]

Hi Craig. I am in St.Pete and particularly really like that area for growth. There is a lot of development plans happening just south of downtown which sounds right around where you are. 

Something that I didn't see you mention is allocation for vacancy, repairs, cap ex. Have you taken those into consideration when running the numbers? 

We also live in our investment properties and always analyze as if we were not to understand the numbers. I did a quick analysis on your deal, assuming rents are up to market and you're not living there, looks like after expenses your cash flow is $255 and cash on cash is about 8.5%. This doesn't need to be your criteria - we typically look for at least $100 a door and 11% cash on cash. Happy to share my sheet with you if that helps.