8 unit in escrow. Is it a good investment?

Question

I have been reading and learning a lot on these forums lately. After a few months of looking I have my first deal in escrow.

8 unit Annual Rent Income = $29,832

Annual Expenses

- Utilities = $2,700- Insurance = $320- Property Tax = $2323

The units are less than 300 sq/ft. Tenants pay their electricity.

It will need a rehab of each unit. They are old and not appealing to the caliber of tenant that I am targeting, mainly college students. I am estimating $5,000 per unit. Once each unit is complete I could increase the income to $38,000. The roof will need about $18,000 of repairs (rough estimate) in the near future because of deferred maintenance by the current owner. Once I have an inspection I will know more of any other deferred maintenance. The property in its current condition is a C in a B neighborhood.

The price is $195,000 and I have 25% down.

Where this is my first property I want constructive criticisms and analyses from more seasoned investors. Do you have a similar experience? Was the result good or bad? Please tell me about it.

Thank you,

Joseph Gozlan · Answer

@Keith Marble you are missing a lot of the expenses (property management, repairs, maint, vacancy, loss to leas, reserves, etc.)

There is no way insurance is $320/year for a $200K property. If it's real, check your coverage.

Even if you plan on self-managing, you should calculate the costs of a PM into the expenses just in case you want to do other things than taking calls from 8 tenants.

having said that, without a lot of knowledge about the area/building all I have is the 50% rule to use and it looks like you'll be at about 7%-8% cap rate which is not bad.

If it's your first property, I'd recommend making sure you're not buying a maintenance nightmare that will turn you off from MF investments.

8 unit in escrow. Is it a good investment?

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