Bangor, ME · Member since 2017 · 72 posts · 19 votes
I am looking into purchasing a 3 unit building in a great location in Northern Maine. I am looking for some opinions on this deal.
3 unit building, all great tenants and fully occupied. 60k purchase price, 79k tax value.
1 bed $550/mo
1 bed $400/mo
2 bed $600/mo
Total Income before expenses $18,600
Expenses
Heat $850
Water/Sewer $1000
Property Tax $1900
Insurance $750
Trash $500
Lawn/Snow $200
Mortgage $4500
10% vacancy $1860
Repairs $1000
Total expenses $11,600
18,600-$11,600 = 7000 total profit per year. Which I estimated about $160/mo per door. Do these numbers work? Place does need a little work but not in the short term. Gives me a little room to increase value of property. I am a contractor by trade and will save thousands in repair labor. I feel like this place has a lot of potential in a few different directions. What do you guys think? Thanks!
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Andrew Michaud Lawn/Snow for $200 per year? Not likely. $1000 per year in maintenance? For units that rent out for $400-$500 per year? Not likely over the long haul. In my limited experience the lower you go in rent the higher the proportional turnover costs are. You could get lucky in year one and stung in year two, or vice-versa. I don't know the area at all, the quality of the property, etc. so it could be a good deal (what are the comps?) but my gut says you're underestimating your expenses.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Andrew Michaud Lawn/Snow for $200 per year? Not likely. $1000 per year in maintenance? For units that rent out for $400-$500 per year? Not likely over the long haul. In my limited experience the lower you go in rent the higher the proportional turnover costs are. You could get lucky in year one and stung in year two, or vice-versa. I don't know the area at all, the quality of the property, etc. so it could be a good deal (what are the comps?) but my gut says you're underestimating your expenses.
Austin, TX · Member since 2017 · 79 posts · 59 votes
9y
@Andrew Michaud In addition to expenses possibly being under estimated (though you'd know better than me) I'd add that, while you may be willing to do/oversee all repairs yourself now and save big in that area, will you still in 5 years? 10 years etc? Will you be able to scale that if you end up getting x number of additional properties? The answer could be yes, again your call, but I'd say the same for property management expense - you are not factoring for it now, will that end up being an issue in 5-10 years? Just some things I'd be looking at as I'm in the same process now.
Bangor, ME · Member since 2017 · 72 posts · 19 votes
9y
@Andrew Johnson, therr is very little to mow on this property. I am going to be doing the mowing, will take 30 minutes of my time. $200/year for plowing is what it amounts to. Also, you think $1000 in repairs is insufficient? What if I accounted for 10% in repairs. $1860 would be a little more conservative. Lets say I am grossing 5k total per year after all expenses in a fairly conservative way. Is that too low?
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
9y
On cheap apartments like that you tend to move more turn over and more wear and tear. I'd say $1k per unit for repairs at a minimum, not total.
You also need to account for all expenses in your calculations, even if you're doing the work. That's fine if you want to mow the yard and manage it but you need to factor both of those expenses in your calculations. You can do them yourself and keep the cash but the numbers need to work with all expenses. If you're mowing lawns and managing apartments for free can you cut my grass and deal with a few of my tenants for free too?
Rental Property Investor · Scotch Plains, NJ · Member since 2016 · 38 posts · 11 votes
9y
@Andrew Michaud
At first glance the numbers seem pretty decent $7000/$60000=11.66% return on investment. That's a pretty good rate. HOWEVER, let's take a look at the number of hours you are going to put in. So you mentioned the 30 mins per week mowing, plus let's say you spend 1 working week (40 hrs) per unit making improvements. That's already 40hrs*3units=120hrs, plus moving 0.5hrs*52 weeks=26hrs. Plus let's say you will spend additional 50hrs on property management (accounting, bills, taxes etc.). That's roughly 196hrs. $7000/196hrs=$35.71 per hr. I bet you make more than that doing construction for others. If your expenses are off as others are saying, that makes this deal even less compelling in my opinion. Is it really worth all the risk and headache?
Investor · Woodland Hills, CA · Member since 2017 · 15 posts · 6 votes
9y
Andrew, did you pull the trigger on the 3 unit building in Northern Maine?
If so, I would love hear more about that. Do you have contacts in thew area? Where is that comfort level coming from because I would like to look in Arizona as well as Mississippi.
You also did not include anything for CapEx. That is a big expense you can not afford to overlook. Along with the other expenses others have mentioned this doe's not look as good as you think. It is not good to analyze properties leaving out critical (common) expense categories. If you end up not having the expense then that's a bonus for you. However, if you did not include them in your initial analysis and then incur one of these expenses (New roof) you may be in the hole for a while.