6-12 mo leases. avg. 1 turnover a month (averaging over past 24 months).
$91K gross (~90% occupancy)
$22k expenses (taxes, insurance, water, sewer, trash, electric)
$5k in repairs (~5% of gross)
$9k mgmt expenses (10%)
$54k net before note
($95k down) 380k loan @ 4.75 for 20yr is 29k/yr.
$25k noi ?
i have talked them down to $475k. i am hopeful to try and end up at $460k.
new roof last year. option to buy 2 acres adjoining for possible additional building ($50k) - thoughts on that? zoning is lax in this county - i'm sure they would approve another 16 unit.
any insight would be great. this is my FIRST attempt to go all the way down the number path before I pull the trigger on my first rental property.
At first glance, I would say your repairs & maintenance figure is on the low side. At $5K for the whole building, you are only talking around $300/door. Maybe on a very good year you'd be that low, but given that this building seems to turnover quite frequently, I'd say you're probably looking at least double that rate. Maybe when you interview a few local property managers, see how much they would budget for repairs & maintenance.
I'd wait on buying land to develop multifamily property until you have a decent number of deals under your belt, unless you came into RE investing by way of working for a developer previously.
@Kyle D. depending on where it is.. familiarize your self with " Yazoo Clay"
Another thing missing is reserves.
@Kyle D. I would also say that the repair costs are low given that there is one turnover a month. I would suggest looking at the cost of a typical make ready and budget that in. I don't believe that $300 is adequate for a make ready even if you are super cheap. If you have to replace the flooring then that would easily go over the $300 allotment. I would really look at the cost of the make ready if there is that much turnover.
Two, I would try to figure out why there is that much turnover and see if you can limit that turnover. Sometimes it makes sense to keep the rents a little lower to keep good paying tenants and not spend money on the make ready.
Third, what are the costs of leasing out the unit? Do you plan on leasing it yourself? Is that part of the mgt fees?
Are the tenants paying the water/sewer bills? If not you can increase your noi by making the tenants responsible for their own usage.
My two cents.
I hope that helps
That's an 8.3% turnover rate, meaning your actual vacancy rate will likely be higher (10 -12%) ... allowing a month for make-ready and re-lease, there will be several months where you have two units vacant.
Your maintenance is about half of reality - as others have indicated.
You have no reserves set aside for capital expenditures. I would set aside at least 10-15% of CFBT until you have established a healthy reserve.
Rerun your numbers using 12% vacancy, 10% maintenance, 10-12% PM, and a 10-15% reserve from CFBT. If your CoC out the other end exceeds your opportunity costs plus whatever is your minimum margin, then you potentially have a deal and can lace-up an LOI and prepare for the deep diligence.
1. Figure $600/door for repairs including turns - x2 what you have currently
2. Figure $300/door minimum for CapEx reserves
3. Underwrite taxes - they won't be the same as your buyers
4. Figure 12% for management - you'll have eviction costs, lease-ups, renewal fees, etc. If they tell you 10%, you'll run at least 12%.
NOI = Income - Expenses (not including cost of note). So - currently you show $54k net; that's the NOI. I think that's easily $10k too high. Based on this, $375,000 - $400,000 sounds about right for you to do OK. But, I no nothing of the location, which could change things to the down-side. It won't change things to the up-side, though - stuff costs what it costs!
Hope this helps, Kyle!
Kyle another biggie is that with lower income units the tenants tend to have less discretionary income.
So you can't push rent growth as much like with more affluent tenants. The job base with lower income tenants tends to be more unstable. Also you can have pooling of friends and family going through a crisis so lot's of extra war and tear on the units regardless of if they are supposed to be there per the lease or not.
The most biggest problem is that you will be states away owning a lower income type property. The building is likely older so 16 units does not support a full time repair person on site. There is just not enough doors to do that. The repair guys typically need about 25k a year. So what happens is they do work for multiple building owners because you do not have the amount of doors for them to live on.
There are some cases where it could work if the repair person is retired and just using it to supplement their income but it can be a big problem.
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