I have a multi unit under agreement and this is my first multi-unit. I have experience in Single Family homes and rehabs. I would like to get your analysis of the terms currently under agreement.
Specifics (delaware county PA)
Row home constructed with brick and has a flat roof (both above avg condition) New windows with capping, hardwood flooring in good condition, wired smoke detectors, old water heaters and two old furnaces. Updated electrical panels. No AC. No washer and dryer but laundromat walking distance.
Split out electric, gas and water meters (tenant pays)
Strong tenant history, near major highways, public transportation etc.
2-2 Bed Room, 1-1 Bed Room, 1 garage also rented for a total monthly rent of $2455 or $29,460/yr
Taxes ($6,000) per yr
Insurance ($1200) per yr
Vacancy 8% per yr ($2356)
Maintenance ($1800) per yr
Other expenses ($500) per yr
Purchase price $180k at a 9.81% Cap rate
25% down using a Self Directed Roth IRA
$135k Seller financing for 180 months at 4.5% ($1032.74/month) non-recourse, no pre-payment penalty
Settlement is on Jan 30th 2015
Feb 2015 rent is buyers
First payment to seller is due March 1, 2015
Inspection resulted in some minor issues which I need to submit my request of repair/credit
Would you proceed, kill the deal or re-negotiate the price?
Am I missing any other factors or are my maintenance and vacancy numbers not enough?
Any and all responses are welcome.
What about management? If you are buying with a SDIRA you can't be involved in the management of the asset.
A couple other questions come to mind:
Like Brie asked above, need to figure out about management. Using your numbers, adding in property management at 10% of EGI brings your monthly cash flow to around $150.
What about landscaping?
You said it's a brick row which makes me wonder how 3 units are squeezed in to a typical row home...unless the 1br is the basement...which raises the question - is it legally allowed?
Is it fully rented currently?
Can you get conventional financing? If you have 25% to put down anyway I'm sure you could get a good 30 yr mortgage with a good interest rate and leverage your rental income better.
What is the current owners reason for selling?
Drew and Brie,
Thanks for the reply.
Property Management - Rents will be sent to my Sister-in-law then she will cut a check to Equity Trust. Repairs/landscaping will be managed by a local handyman that I currently use. Re-renting when needed will be performed by sister-in-law. There isn't much of any landscaping except for an area of 20 ft by 25 ft of grass.
The three units are legal. The third unit is in the basement. It meets all code requirements.
All three units are rented out.
Seller is selling since he has multiple properties and he is over 75 years old with no kids. He is looking to sell his inventory. He also has an interest in not being cashed out due to long term capital gains.
The reason I am interested in this deal is that the Seller is willing to provide seller financing. Getting financing through a SDIRA requires a larger down payment (40%) and possible other restrictions such as square footage of each unit. Another factor is that the financing through a SDIRA must be non-recourse. Most or almost all local portfolio banks will not give non-recourse financing unless you have a long term relationship. I have called about 30 local banks. The IRA lending banks offered interest rates from 5.5% to 8%.
I prefer 15 yr fixed rates since I will pay less interest over time and the seller was looking to be paid out in 5 years which I said was not possible at my end. This is also going to be in a ROTH IRA which future income will be tax free. I think my goal will be to pay him off in 10 yrs so I can then pursue a second property 10 yrs from now.
The maintenance of this property will be minimal over the long haul which will be great retirement income.
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