Deal or No Deal for a Triplex

11 Replies

Greetings,

The deal (Triplex, 3-unit)

VA financed loan (no money down!)

purchase price- $400,000 @3.375%

property tax- $1200 Annual

Insurance- $1000-1200 Annual

Utilities $3600 (water only) Annual

other cost ($200) Annual

vacancy 5%

Property Management- None

Income $3300 ($1100 each unit)

1st year occupied by me (VA requirement) cash flow -$126

2nd year occupied without me cash flow +$841

I think your property tax calculation may be off that seems extremely low.  Also you might consider submetering the water if possible to cut down on expenses.  In addition I would plan for a bit more than $200 per year in repairs to be safe.

Here is what I come up with:

Purchase Price: $400K

Income $37,620 (year two after 5% vacancy)

Expenses $18,810 (50% rule, which may need to be more if you are covering all water)

Debt Coverage $21,219 ($400K @ 3.375% 30 year fixed = $1,767.28 PI payment/mo)

___________________________________________________________

Cash Flow  NEGATIVE $2,409 per year

NO Deal...in my book anyway.

I also think your reserves are way too low... I generally budget 20% for vacancy, maintenance, and capital repairs. So my analysis for this would be PITI $2000, reserves, $660, water $300. Total expenses would be $2960. Cash flow of $340
(267) 520-0454

@Jason DiClemente I agree reserves should be higher, but I think 20% vacancy is a bit much at least for my market and probably Washington DC too (assuming that is where the property in question is located).

Property tax correction- $2,200. And yes vacancy in DC is low. However, I will recalculate the percentage to put away for reserves. Furthermore, I did not use the 50 percent because I was provided a rough estimate of expenses from the owner. Hope this information helps. 

There is a 50% rule for a reason. I think you can be more flexible on SFRs, but when dealing with multi-units, you stick to those rules because they usually ring true. You haven't accounted for reserves, which should be based on EACH unit. Also, what about repairs and CAPEX? What about the grounds, landscaping, parking? Are you responsible for paving the parking spaces?

Everything you will have in expenses is times 3!  You are playing to close in my opinion.  All it takes is 1 HVAC to go out and your budget is BLOWN.  And if you have Tenants, you can't just tell them that you have to save up for it.  It has to be fixed ASAP.

I wish you the best of luck, but I just think that your estimations of things are BARE BONES, and do not account for the many unknowns that can come with rentals TIMES 3!  I'm just scared for you, that's all.   It's a risky investment for your first one.

Originally posted by @Antone JAmes :

Property tax correction- $2,200. And yes vacancy in DC is low. However, I will recalculate the percentage to put away for reserves. Furthermore, I did not use the 50 percent because I was provided a rough estimate of expenses from the owner. Hope this information helps. 

 Even your correction to the tax is low. DCs tax rate is 0.85% of the properties value.

Aside from that, that price is pretty low for a 3 unit. Im guessing it is EOTR, east of the river at that price....and also you will find most multis in DC that are not already fully rehabbed will have a hard time passing VA appraisal condition requirements.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635
Originally posted by @Russell Brazil :
Originally posted by @Antone JAmes:

Property tax correction- $2,200. And yes vacancy in DC is low. However, I will recalculate the percentage to put away for reserves. Furthermore, I did not use the 50 percent because I was provided a rough estimate of expenses from the owner. Hope this information helps. 

 Even your correction to the tax is low. DCs tax rate is 0.85% of the properties value.

Aside from that, that price is pretty low for a 3 unit. Im guessing it is EOTR, east of the river at that price....and also you will find most multis in DC that are not already fully rehabbed will have a hard time passing VA appraisal condition requirements.

If you are hoping for this to do double duty as a long term buy and hold / appreciation play then I hope you have decades to wait for that area to catch up to the areas around the stadium. Like @Russell Brazil said, you may find yourself unable to use your VA if it can't pass appraisal condition requirements. Consider having alternative financing available if you are determined to close the deal.

@russell brazil I stand corrected and the property is renovated as of 2013. The area is already evolving, especially with the St Elizabeth and homeland security developments underway. So it should appreciate fairly quickly.  But i have considered everyone's advice and will indeed recalculate everything.  Thanks bigger pockets family. 

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