How To Analyze a 3 plex To Purchase For my 1st time?

[Gabriel Morales]

Hello All,

I hope you all are well and staying safe out threre! I am a Realtor in Tucson, Arizona, looking to purchase a 3 plex for my own portfolio. This is my 1st time purchasing a multi-family. I am utilizing FHA 3.5 down. I found a triplex that I like and want to make an offer but want to make sure it would be a wise investment. The property is listed for 299,900.

Unit 1	$635	1	1-0	589sqft			1st	No
Unit 2	$700	2	1-0	705sqft			1st	No
Unit 3	$750	2	1-0	619sqft				N

Gross Scheduled Rent: 25,020
Vacancy Loss: 0
Other Income: 0
Adjusted Gross: 25,020
Total Expenses: 6,793
Net Opp Income: 18,227Analysis
Cap Rate %: 6.08
Gross Rent Multi: 11.99
Vacancy Rate %: 0
Exp/SqFt: 4.12
Exp % of Gross: 27.15

And  rents can be pushed up to market rate.  How would I evaluate this?

[Bobby Hosmer]

It’s just an estimate

7% sounds like a lot, but in reality, 7% of 1 year is just over 3 weeks. So let’s say you acquire this property and it’s 100% occupied.

When the first lease ends, you move in right away. Well during the course of that year, if you plan to raise rents to market rate, your two other units might sit vacant if/when the tenants move out. If each unit takes just a week and a half to get filled, that’s 3 weeks total, or just under 7% time where you don’t get rental income due to vacancy. You might not need to make any repairs, but during a turnover, tenants won’t be moving in and out of the unit on the same day. You’ll take a few days to clean the unit, change the locks, and do whatever is needed to make the unit ready for the next resident, and that could take a week.

Going into year 2, you could probably get aggressive and reduce your vacancy to sub 5% since it might be more expensive for your tenants to move vs pay for the annual rental increase