Deal analysis - 5 unit $670k C class in Carolina Beach, NC

4 Replies

Only have experience with Single family and would really appreciate anyone who can share their input!

Build in 1983, 5 unit 2nd row from the beach rented on a long term basis. 

Rents - 3br $1250, 2br $850, 1br $750, $675, $675

Utilities are included and total $3800/year,  not sure if possible to meter separately, but would definitely need to be charged back to the tenants if possible.

* Taxes $3750

* Flood insurance $1000

* Wind & Hail $2,000

* Home owner insurance $500

Owner financing is offered with $240,000 down, 3% fixed over 30 years with a ballon payment after 5 years. listing has been active for over 2 years with original price of $750,000.





5% Vacancy
NET OPERATING INCOME$37,222
Cash on Cash Return6.40%
Gross Rent Multiplier13.30
Debt Service Coverage1.71
Operating Expense Ratio23.07%
Acquisition Cap Rate5.54%
Breakeven Occupancy65.31%

Rent hasn't increased in years on most units and should be able to move up 100-150$ higher per unit as well as having them cover utilities.

The agent is making it clear that price/down payment is negotiable. Briefly walked the outside of the place and it clearly has some deferred maintenance. I plan on getting a GC to walk through and get some estimates on how much maintenance will cost with the current conditions.

If I rent went up and utilities charged back then the numbers would look like this - 




5% Vacancy

NET OPERATING INCOME$44,062

Cash on Cash Return9.22%
Gross Rent Multiplier11.64


Debt Service Coverage2.03


Operating Expense Ratio20.21%

Acquisition Cap Rate6.56%
Breakeven Occupancy57.15%
  

I would expect to lower the asking price by at least the amount of deferred maintenance, but this has been on the market for over 2 years with low inventory in the area, so I can't tell with what numbers this would be a good deal. 

If you can share your thoughts I would greatly appreciate it!

In my opinion there isnt much upside of going with seller financing with this much money down. If you can get to be a less than 20 % down option then you can go SF route....Otherwise, go to a bank. Just my two cents...Also, I have a lot of property in flood areas and costal, huge variables, your numbers seem light there. Call and get your own quotes, typically those quotes may come from seller and on turn over they go through the roof or might not be able to even be financed. 

@Giora Sela . That's a large down payment for seller financing.  Also, how are you planning to manage it? Also acquisition cap rate seems quite low. If you can transfer the utilities to the tenants and raise the rent, then there is definitely some upside. What's the time frame for making that happen, though? Looks like it might take some time, since tenants are on long term leases already.

I agree, I feel like that amount would be significantly less if I was to make an offer. 2 units did have a rate increase recently and are on a lease until 10/18, other units are on a month to month basis “to allow future buyer to increase rent” as the agent stated. 

How will you factor into the deal the cost associated with deferred maintenance that I expect will come up during the due diligence process? 

Deduct immediate costs from price is obvious, but what about future costs?

@Giora Sela . There are different ways you can handle capex. If you feel that there are maintenance items that can help you get immediate income boost, you could get a loan (maybe interest only), so you can address the items right away, then bring in income to repay the loan. Or if it something that can wait a year or two, you can be more patient and as you get more cashflow, you put the money towards a fund to address the issue in due time. It all depends on your investment goals and exit strategy. 

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