Hi BP community! Special thanks to everyone who has offered advice and answers on this website. I have learned a great deal and your generosity is very much appreciated.
I am currently looking into possibly purchasing a 6 unit multi-family and this is my first multi and would like your advice for assessing the deal. Here's the facts I have:
Four 2 BR each with large storage unit w/ washer/dryer hookups
Two Efficiencies w/ washer/dryer hookups
Six carports with Storage Units
Well constructed building with a newer roof and all units but 1 remodeled. Well maintained property with VERY low vacancy. I know the local inspector and he agrees that the property is in very good shape. Yearly rents received $49,525. Total yearly expenses including advertising, cleaning, maintenance, insurance, professional fees, management, repairs, supplies, taxes, utilities, depreciation= $26,652.
NOI= $32, 038
The owner is asking $300,000. From my MLS comps, all I have available for comparison in the area is Two 8 units that sold for $300,000. These complexes were not in as great of shape as the Six unit I am looking at nor was the area as great, but nonetheless that's all I have to compare. The rent is comparable to the area if not just a little low, but the current owner has had some tenants for >20 years and hasn't increased rent on them for fear of losing them. ( apparently they are great tenants who don't cause any problems).
Thanks for ANY advice you can give on this deal. I appreciate your time!!!!!
Hi Kelly, sounds good so far just have three suggestions (1) is it local so you will able to keep a close watch? (2) is each unit separately metered for utilities? And, have you talked to the tenants and looked at the rent rolls? By the way you do not lose 20+ year tenants by raising the rent.
Sounds good. Did you actually check out each unit to ensure they really are updated?
Make sure the units are separately metered too and that you are not paying for anything out of the norm? I imagine the water and sewer has to be high if they all have their own hookups.
Check the tanks and heating systems, because that could cost a pretty penny to replace.
Also, make sure you account for the last month and security deposit handoff !
How are you planning on financing this? Or is it all cash?
What's your market cap rate? In other words, what was the NOI on the 8-plexes that sold for $300K.
"Yearly rents received $49,525. Total yearly expenses including advertising, cleaning, maintenance, insurance, professional fees, management, repairs, supplies, taxes, utilities, depreciation= $26,652."
What does depreciation mean here???
Depreciation is not a deduction so why is it listed as an expense?
You say "NOI= $32, 038"
Where does this $32,038 come from?
How much do you figure your renovation costs for this complex? Are there any major costs?
If you are figuring $10,000 in renovtion that means your cost is $310,000
What is your monthly income from rents and what ever else you get income from on that property. How much rent does each 2 bedroom get and what is the rent for each eficency. What additional rents for storage etc do you get by the month and the year.
Did you say everyone was seperatly metered? Do the tenants pay their own water bill? Once those numbers are figured in we can all weigh in
Thanks for the response!
To answer your questions, yes separate meters. No I haven't talked to the tenants yet, the owner hasn't told them he is selling yet. I don't have an NOI for the comped 8 Units and I am in the process of finding out the market cap rate even though there are mixed advice regarding their accuracy in determining whether this is a good investment or not. I figured I would try and cover all bases either way. This complex is local to me, so yes I would be able to keep an eye on things often. I haven't checked the heating tanks yet, but according to the owner have been replaced within last few years. I definitely want to do my due diligence in making sure I check everything out, so I appreciate your advice and suggestions!! Thank you and keep em coming :)
I am in the beginning stages of accessing this deal, but here is what I have to go off of so far:
Yearly rents received: 49,525
Cleaning & Maintenance: 2522
Professional Fees: 210
Management Fees: 25
After I bought my multi, I saw the tax increase to a percentage of the sale price, indicating to me that the assessed value was closely aligned to the sale price.
Also, my insurance company sent over an inspector to determine the replacement value of the property, and yes, it increased from the stated insurance the seller had given.
So for the future, I made a mental note to keep in mind that at least these two expenses, and possibly others, will increase after the purchase and to make room for them in my equation.
Great Advice Carlos. Thank you
@Kelly Rompel , depreciation should not be counted toward expenses. It only affects your taxable income.