Hey BP community,
I have came across a possible 8-plex for sale, which has a unique history, that I need some advice on.
The building has 8 units with 7 of them rented weekly and one rented monthly. This is obviously not ideal for a long-term buy-and-hold but I got the financials and the dang place cashflows like a boss. Over $8000/mo after landlord-paid utilities. So it's basically a weekly hotel. I know this comes with it's own garbage bag of problems (lots of cleaning for the weekly turn-over, not as stable income, possibly some lower income people floating through there, etc). This building is constantly filled from what I was told. It has a hefty price tag, I assume because of the cashflow. The owner is asking $599,000 which I think it too much and wouldn't pay that. Any input would be great.
Are you looking to keep running it as a a quasi-hotel or change it over to long-term? Also, clarification of what is included in your cash flow number will help.
Quick napkin math shows $8,000 per month in cash flow = $96,000 annually. I don't know what you've baked into your cash flow number but with another $2K/month of "buffer" expenses leaves you with $72,000 NOI.
72,000 / 599,000 = 12% Cap
And you have PLENTY of Debt Service coverage on it assuming 25% down at 4% amortized over 25 years.
What has you thinking it is too expensive? What are your metrics you're measuring against?
@Mason Hickman I don't like the idea of weekly short-term rentals. It attracts "shady" people and the local community would rather see it be converted to more long-term renters. The problem is these are all 1b/1b and the local market only supports rents of around $500/mo for 1b/1b. That brings the cashflow waaaaay down (around $4,000/mo ) which at a $600,000 price tag makes the cashflow almost negative. But because of their current cashflow, I suppose the can command that level of price. That price only works if the current "hotel-style" renting stays in place.
@Adam Smugala It sounds like you are mistaking "cash flow" for "gross rents" and these are drastically different. At $500/month for 8 units that would be $4,000/month in "gross rents" not "cash flow" because you have not factored in any of your expenses yet. Your actual "cash flow" is your net income after all operating expenses.
@Brian Garrett thanks for the correction, yes, gross rent is around $4,000/mo which makes the deal unacceptable for long-term rentals. Sounds like I'll have to offer waaay less and see if they bite or walk away. Thanks team.