Mulit Family Deal Advice

7 Replies

My husband and I are considering our first multi family deal. 

I would appreciate any advice and guidance from more experienced multi family investors. Here is the information I have so far:

It is an 8 unit (4 duplexes) property. Four units are 3/2s ($800/month) and the other 4 are 2/2s ($750/month). It has been on the market over 300 days and the owners live out of state. The property is being managed by a local property management firm and according to the listing agent, it hasn't had a vacancy for more than a day in over 5 years. Units are currently fully occupied. Built in 2000.

Ask price: $780K
Appraised Value: $780k (unconfirmed)
Offer: $700k
Down payment: $115k (25% equity position)
Loan Amount: $585k
Closing Costs-$8k
Interest Rate: 4% (unconfirmed)
Term: 30 year
Monthly P&I: $2792.88

Monthly Income: $6200.00
Monthly Expenses: $4467.88

Monthly P&I-$2792.88
Vacancy-$124 (2%)
CapEx-$310 (5%)
Property Taxes-$931 (15%)
Repairs- $310 (5%)


Monthly Cash Flow: $1732.12
Cash on Cash Return: 17.47%

  • These numbers assume we will be managing the property as we do not yet know what the property management firm charges and offers.
  • We have not yet had a showing of the units, although I am familiar with them and the neighborhood.

Any thoughts on this deal? What else should I ask/do/consider before deciding on making an offer?

Thanks in advance for the help.

4% interest will be un-attainable. 30 year fixed rate will possibly not happen unless you can get the loan in your personal name. Cap Ex should be $150+/month/duplex. Repairs are extremely low. I would expect 10-15%. What about water and trash? What about utilities when it's vacant? Also city fees? 

@Bethany Spinks

If it's making 4K+ per month, why are they selling it and why would they come off of their 780K number by more than 10%?

If you really want to buy this property, you have to make the whole deal a win-win for both parties.  Find out what they want most of all (find out their dominant selling motive) and then provide it while getting whatever it is you want (lower down payment, better cash flow, lower interest rate etc...).  Sometimes it doesn't work out, but often it does.

Structuring deals is one of the most important aspects to this game we play.

Hope that helps

Stephanie

@Bethany Spinks I don't know the area but those numbers do not look great.  You should always factor in a management fee even if you plan on managing it.  Why?  Because someday you won't want to or something changes in your life and you won't be able to.  You want to know that you can still make money on a property even if it's being managed by someone else.

Commercial loans under $1M are tougher to find.  Amortization is likely to be 20-25 years with a 5 to 7 year balloon.

I agree to factor in a property mgmt fee of 8-10% per unit.  Repairs # are low.  Are you factoring or adding capital for improvements to try and increase the rent and thus increasing the value of the property?  Are the rents under market?  Couple things to consider in your analysis.

Thank you for the feedback. We are going to go back and adjust some of our numbers, including adding in the prop. management fee.

@Stephanie Potter good point. I haven't spoken to the seller's to know their exact motivation for selling, but I'll see if I can get some information about that. With the property being on the market for almost a year and the seller's being out of state, I'm hoping those would be reasons they would be willing to negotiate the price. Time will tell if that's actually the case though. So far I've been focused on finding a price point and structure that will make it worth it for me to proceed, but you're right; I need to find out what their motivation is to try to make it a win win. 

Burnet, TX...spent a lot of summers there! As for the deal, the numbers appear a little bit rich. The real NOI just wouldn't make me pursue that specific deal at that level. Doesn't mean you couldn't run the numbers and make them work for a price you're comfortable offering.

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