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?
Congrats on the find! It’s great that you have some of the numbers listed, but you’ll want to try and get rental comps for the neighborhood where the property is located. That will greatly impact rents.
For example, you wouldn’t be able to use the gross rent or adjusted rent numbers, since you’ll technically be living in one of the units.
The numbers also don’t account for any vacancy. In my opinion, even a nice, renovated unit should account for 5-7% minimum. And that will still be across two units, not all three.
I would calculate as follows (based off not knowing the Tucson neighborhood in which it’s located)
Assume you move into the smallest unit and are managing it yourself ($0 for Prop Management), you’d rent out the 705 sq ft unit and the 619 sq ft unit, each renting at about $1.2 per square foot to be conservative
Investor · Tucson, AZ · Member since 2016 · 29 posts · 25 votes
4y
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