I'm new and have been doing a lot of reading on here. I think I have found a good investment. Numbers are $118,000 a year. $41,000 in expenses. Purchase price $400,000. $100,000 down and 5% at 10 years. Seller financing. This is my 2nd property I currently own a duplex and this is my first venture into commercial. Any advice would be greatly appercited 

Why is it so cheap?

@Seth Wilson  small town and owner is getting older and wants to travel with his wfe. Plus he owns quite a few more properties. Stretched to thin. Building is in nice shape too. Pats need updating but fully rented

Sounds like a great deal on the outset! If he has more properties you may just need to become his retirement package...

@Daniel Raposo  that is what I am thinking. We'll see how this one goes very optimistic though

I bought a 12 unit, with the seller in much the same situation. Just make sure that even though it is full that everyone is paying, on time and in full. So long as the market is growing or stable, sounds like you have a good property on your hands.

I hope it works well for you.  You should report back here 6 months after closing Nd report how similar/different the actual numbers are compared to what you understood mother to be at closing.

congrats on taking action

Please make sure owner is current on property taxes 

Do you have any pictures or spreadsheet for this deal ?

Originally posted by @Seth Wilson :

Why is it so cheap?

Really, why would a property sell for ONLY slightly over 3 times gross rents? Is this a typical GRM for your area? Not a place I'd invest in.

@Jenkins Ramon  thanks. Yes all taxes are current I ran it through the Bp calculator and cash flows around $650 a month after everything

@Bob Bowling it's hard to compare grm in my area but I don't think he would get much more than $100,000 more and I would consider the area a low b high c. Quite a few long term tenants also. 

@Bob Bowling I was very skeptical of the price also but building looks good, will hire a building inspector soon to make sure. I just think it's a good deal.

Originally posted by @Michael S. :

I'm new and have been doing a lot of reading on here. I think I have found a good investment. Numbers are $118,000 a year. $41,000 in expenses. Purchase price $400,000. $100,000 down and 5% at 10 years. Seller financing. This is my 2nd property I currently own a duplex and this is my first venture into commercial. Any advice would be greatly appercited 

 Expenses seem low. Did you include vacancy in your underwriting? Did you gross up the taxes for the new purchase price?  Is the insurance quote correct?  Did you include a management fee?  repairs and maintenance?

Are you saying 10 yr amortization or balloon?

What's the unit mix?

What's the average rent for the mix?

This property could have potential. Of course the expenses look low.

There might be compensating factors that can overweigh that. Maybe getting a regular loan is not in the cards. Some people have money but weird situations that dictate owner finance is needed. The guy retiring could have tax implications so the owner finance works.

The rents could be deflated versus the market. Some investors when they build up equity over many years STOP wanting to get top market rents. To make their lives easy they increase rents each year but barely and remain the best deal in town to not ( rock the boat ) with turnover.

Older buildings were constructed with lower density so the land might be more valuable and could be repurposed or a higher density built on the same land. The owner might still have wasted expenses. I looked at one last year where they guy in his 70's was still spending 3,000 a year on a phone book ad! lol

He said he know it didn't do anything anymore but he liked the sales rep and just left it alone as they were friends over the years.

So valuing a property is not just black or white and has to be looked at from many different angles. You could have a property in it's current use be a single but converted or the land sold be a grand slam in returns.

@Johnny P. I did not factor in higher taxes, i believe they will stay close to the same. I figured a 5% vacancy  10% repairs 7% cap which i know is prob low but building is in pretty good shape. Ins should be right on, and yes 10 yr amortization. I plan on either refi after 5 years or pay it off and use a line of credit, not positive yet. Going to see how it plays out. All the rents are below market and can easily be raised also

@Ben Leybovich   There are 8- 2 bedrooms 5 one bedrooms and 5 eff and 3 store fronts. Rents start at $300 and go to $650  some include everything some tenants pay everything. Store fronts are all seperate

10 yr ammo is harsh!  Why not just use traditional bank financing and get 25.  $650 a month cash flow is tight and will probably end in you stroking a check every month.

why do you think the rents are so low?  If its so easy to raise rents why hasn't the current owner done so?  Owners tell me this 99% of the time and it drives me crazy.  The only case i've seen where this was accurate was an owner renting out units to his relatives.

@Joel Owens    Thanks for your view.  I agree the owner hasn't raised rent at all i dont't believe and the expenses i have for 41,000 are what his expenses are for the building. Then i factored in repairs etc but i see alot of potential with minor cosmetic to the apts to bring them up to market. I mean in my area a 1 bedroom with everythng included goes for $650-$800 and hes only charging $500-$600 and 2 of the stores his wife is in and not charging her rent so when i get someone in there my income will go up. I am signing contract monday and then getting a building inspector in there. The building looked good when i walked through it with my contractor, he didnt see anything that scared him

@Johnny P.   I am not sure why he has not raised rents. Most of his tenants have been there over 5 years and I think he want to save on taxes but when we draw up the contract I'll make sure i can refinance or no early payment clause. I'll know more next week but i think he's just tired

Hi Michael,

Sounds exciting. What year was the apartment built? Is it brick? Has the owner provided you with the last 3 years property performance?

Is this section 8 approved? If so how many of the tenants are section 8 and are their units up to code?

Just a couple things to look into if you haven't already. Either way this sounds like a lucrative investment opportunity- best of luck.

@Dustin Rose  Tthanks for the vote of confidence. the building is early 1900's and is stick built. It is is very nice shape with updated electrical and furnaces. It's been very well maintained. I am lucky, I have a mentor, I grew up with his son. He is retired from real estate investing so I'm not trying this by myself which is a huge help. I don't belive any section 8 but will find out this week, going under contract. All very exciting. This site is amazing, I read everyday. Will keep updating as I go along