I am eyeing up a multi unit in a great location and I am trying to underwrite it and would love some feedback. I will be trying to apply the BRRR strategy for this property. Here are the details.
7 Units, 7585 sq ft, 7 (1 bed and 1 bath units) on 1.14 acres. There is potential to add 3 more 1 bed and 1 bath units on the third floor and all of the units need updating and could generate more rent. Here is the financial breakdown...
Purchase Price- $495,000 (Listed on the MLS)
Unit #1: $575
Unit #2: $575
Unit #3: $330
Unit #4: $575
Unit #5: $575
Unit #6: $625
Unit #7: $750
Total Rents- $48,060/yr
Sewer and Water- $2100
Other Expenses- $4000
Total Expenses- $14,073
Purchase Cap Rate at Asking Price- 5%
Typical Cap Rate for Area- 8%-9%
Rehab Estimate (to update all the units and build 3 more) - $150,000-$175,000
Now I am trying to figure out what I would offer and how I could get the cash flow up in order to have the property appraise for much higher than it would now. Please let me know if anyone could help or if you would need any more information. Thanks
You are missing a replacement reserve of 3-8% of gross rent depending on the age of the building, vacancy rate (probably 5-10%, you have vacancy, non-pay, evictions, etc), Maintenance expense is really low. On my duplexes I typically spend that amount. The only way this deal would work at that price for me is if rents are low and the units to be added can be done inexpensively.
Go as conservative on your expenses as you possibly can (if you find a value range, go with the higher end) without raising the rents and see if the return is sufficient. You can kind of reverse engineer it from there.
@Todd Dexheimer I always calculate that into expenses but I was looking at it from the standpoint of the bank in regards of a refinance. If I was able to get all the rents up to $750 and add the additional 3 units I feel like it would be a good deal. What do you think?
It could be a solid investment if you can perform. Just make sure you have plenty of extra money set aside in case of xyz happening. I'm not familiar with your market, but you should. Be able to be at or above a 10cap depending on the renovation needed
@Shawn Connors - Find out what the going rate is of price per unit - Also, have you considered your debt service? Even at a purchase price of $450K with 20% down and a 20 year am at 4.5% this investment wouldn't cash flow.
Are you able to secure 12-24 months worth of interest only payments as you rehab or build the new units? Either way this deal looks awfully thin. Good luck to you!!