Hey guys I'm looking for some feedback on a triplex that I am looking at. I believe this is a good deal and want to ensure that I'm not missing anything, plus i have a few questions. I will be occupying the smallest or second smallest unit in the property.
Area: High End Area, SFH's that are 3/2 or 4/2 are mid 300's to 400k.
Financing: FHA 3.5% down at 3.75% interest rate
Units / Rent: 1br / $950, 2br / $1200, 3br $1500 (currently rented for slightly under those numbers but they haven't been raised in 3 years)
My max offer on this possible looks like 370k with 10K back in closing costs
Down Payment + Closing Costs(5%-10k back) = 11,100 + 8500 = 19,600
Cash Flow = Rent - Mortg - Insurance - Tax - Maint(10%) - Vac(5%)
3650 - 1665 - 100 - 880 - 365 - 185 = +455
Cash on Cash = 455x12 = 5,460 / 19600 = 28%
I'm new to multi family homes, I have one investment property currently. Any advice on this deal would be helpful. I'm sure CAPEX will come up, however this is something I don't quite know how to factor it in to the numbers.
1. How are we getting an accurate appraisd value when multi family homes in the area are scarce? I want to ensure that I am not buying over market even if I am cash flowing nicely.
2. Whats the best way to bill tenants for water in a multi unit? This is not an expense that I want to take.
Any additional thoughts would be helpful!
hi @Rob Randle
I'm a newbie here too but have been doing a lot of research on multi families. From what I've read and heard you should really factor in the future state of the property and not just current conditions. What I mean is, right now your operating expense % seems a little low even with ridiculous NJ property taxes. That may mean you're not factoring enough for maintenance. I'm not sure how long you plan on holding the property but 10% may handle the maintenance on a high end place in the first few years but big ticket items start to creep up. Well you have enough when you have to replace the roof and three water heaters?
Also, you don't have property management in your calc which makes sense if you plan on living there or nearby but do you plan on managing it in ten years?
Also you didn't mention utilities other than water so I'll assume they're split and tenants will cover.
I'm pretty conservative when it comes to estimates as I like to assume the worst and hope for the best.
I'll speak to your questions first: #1 - that's what appraisers are for! Appraisers will look for other multis in similar areas (doesn't have to be the SAME neighborhood, if it is a similar neighborhood) and figure out cost per door, cap rate (looks like you're buying at 6.9), and usually a third method (cost per square foot or cost per bedroom) and then use those three in a weighted average (weights for each method will vary) and come up with an appraisal. No reason you cannot do the same and get an idea of what you think it's worth.
#2 - Is each unit metered separately? It sounds like no. You can go through the hassle of sub metering but on a 3 unit property, this is going to cost much more than it saves you. You could charge a flat monthly rate for water on top of rent (called a RUBS charge - careful, some states have rules about these charges) or more than likely, just factor that in to the increase in rent. It is important to consider utilities when looking at market rents in the area. For the market rents you noted above, did the comps you found for those numbers include any utilities?
As for Capex, yes it should come up! You need to set aside a decent amount of cash in reserves, and at $455 a month, it could take you a while to get there. If the purchase will leave you $10-15k in cash on hand, then thats ok. Otherwise, reduce your price so you can have something on hand.
Also - you asked about charging tenants for water, but I saw now allocation for a water/sewer expense in your monthly calculation. Might need to add that. And any other utilities? Common electric? Trash? Landscaping/snow removal?