Running the numbers - your opinions

[David Doiron]

So, as a learning process and in order to practice my deal analysis skill I'm scouting mls to see if I could find a deal on my own. After some time I've stumbled on this 8-plex which could be interesting. This is to be taken with a grain of salt, as I'm looking to validate my thought process and analysis. I'm not even sure if that would be a good first multiplex project, since it's a repo !

City Evaluation = 680,000. Market price is usually 1.2 to 1.5 above Evaluation

Asked Price = 620,000 (I believe it is too high since the lack of tenants)

Nice Area, well located, high rental demand.

8 x 1Bed Room units out of which only 2/8 are rented (!!)

Potential revenue as per realtor 49,000/year (I believe it is too low, my research shows that avg 1BR units rent for about 600+ in that area = 58,000$/yr )

2 units need major rehab, other 6 needs love. Since it's a repo, I'm uncertain about other major maintenance such as windows, doors and roof.

So here goes my take on the strategy:

Offer 400,000

Get 500,000 hard money to account for rehab and upkeep costs

Rehab and Rent all 8

Refinance mortgage for a value of 700,000, so 80% amount to finance = 560,000

Pay off the hard money lender and fees. At that point, I have no more cash in the project, so I would think about holding the property. But the 50% rule shows a negative cashflow with that new mortgage value.

Possible exit is to consider this a flip and resell the plex for a one-time profit. 

When you see this as an investor, would you even consider taking the time to deep-dive the numbers and make a more detailed guesstimate.

Advice, comments on the analysis ?

Thanks for sharing and helping my learning :)

PS.: Property cannot be visited unless an offer is accepted ... smh :/

[Jacob Sampson]

Depends on your goals.  If the goal is cash flow there is none in that deal.  Most investors will be looking for cash flow when purchasing so it may be tough to sell for what you want.  If you could actually sell for $700k then that is the move because, as stated above, this has negative long term cash flow.

[John Warren]

Would you even be able to get hard money for that deal? I spoke with several hard money lenders and they wanted me to have an absurd amount of liquidity/ net worth. I was looking more at the 100k price point to. 

Also, my gut would say there is not enough meat in this deal for that amount of risk. Commercial properties can get expensive to fix really fast, and with no cash flow you could be in a world of trouble...

Just my 2 cents!

[David Doiron]

Thanks for your input guys !

The lack of cashflow pretty much kills the deal, because the whole project becomes based on potential revenue of the flip... while the cashflow will not increase for any other investors as well, so it could become hard to sell at a decent price.