A friend investor is unable to get financing for this property and he mentioned it to me, details as follows:
Purchase Price: 405K (50 days in the market - current owner is retiring)
4 Units - 3 bedrooms each
All units rented @ 1023.00 (including heat) - $ 49,104
Assessment: $ 63,400.Land + $ 256,400. Building = $ 319,800
Expenses in 2014:
Cleaning $ 911.35
Insurance $ 1,316.00
Taxes $ 6,226.00
Trash Removal $ 125.00
Property Maintenance $ 5,127.50
Contractor Services $ 1,200.00
Exterminators $ 1,255.00
Plumber $ 752.00
TOTAL $ 16,912.85 (Oil is not included and this property is in New England)
NOI - 49,104 - 16,912.85 = $ 32,191.50 (not accounting heating oil)
P.S. Property is close to a university and hypothetically tenants should not be difficult to come by...
Interested to hear your thoughts, opinions, suggestions, etc.
I would expect a better cap rate considering you can't force appreciation as on a true MF (5+ unit) property.
Correct @Chris Soignier unlikely this will appreciate any time soon unless there are some unexpected events...
Any other opinions, comments!?
Here is the deal in my eyes -
Purchase price - $405,000
Mortgage $324,000 @ 5% = $2139/month
Taxes - $519/month
Insurance - $110/month (I think this is too low. It's either wrong or not for full replacement value. It's costing me $1100 to insure a single family home - in a corporate name which I would assume that you would create for the property)
Trash - $10/month (This seems very low. If it is a dumpster, it may be $125/month not annually.)
Maintenance/Cleaning/Contractors - $770/month
Oil - $333/month ($1000/unit for the winter - this might be high, but better to be high then low)
Where is the water cost?
Water - $120/month
Total - $4001/month in expenses
Revenue - $4092/month
Net cash flow - $91/month
I think it is a high risk investment for $91 in profit. You won't have enough money to replace the roof, heating system, windows, carpeting, etc. when they wear out.
I believe the insurance, maintenance, water and trash are too low in your figures. Maintenance needs to include some CapEx reserves which I believe the seller probably didn't have much of in the year he gave you these figures.
The only way this deal works is two things - the rents are below market so you can raise them up to market rents AND you get a better price on the purchase price. Maybe it's typical that assessed value is so much lower than the sale price but it seems drastic.
I think if you have $81,000 to invest, you can find a better deal if you keep looking. You would make a 1.3% cash on cash return.
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