I like it. Over 2% rent/cost.
In an area you are familiar with.
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@Stanford Neal Mead can you provide more details about the area of town? What are comps selling for? Are utilities separtely metered? Is the building built for purpose? Best of luck man, make sure to get a sewer scope!
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Originally posted by @Stanford Neal Mead :
@Kate J. Vacancy might be one of the major downsides of this area - could be in the 8-10% range. Great question.
If it can be students oriented I would go for it. Otherwise, it might be risky. College campuses almost never drain. If it's less than 10 min walk to campus - go for it. Anything above that can't converted to the student's housing.
You need to crunch number putting in BP calculator. Need a little description preferably photos of exterior and interior.
You need to get interest rate, down payment etc. There is insufficient to analyze your plan.
A few more questions that might help folks understand your situation.
1. Do you already have tons of real estate experience, or is this your first deal?
2. Have you ever managed an apartment building before?
3. Why is there currently such a discount on the purchase price? Bad neighborhood? Deferred maintenance? Vacancy?
4. Are there any units vacant right now?
5. What is the specific town and University you are talking about?
6. How far from the building do you live?
7. Here are some expenses that you haven't mentioned:
- Vacancy allowance
- Property management
- Utilities (you seem unsure)
- Capital Expense Reserves
8. Have you reviewed the rent roll, expense history, and pro formas from the previous owner?
9. What specifically do you plan to do to force appreciation, and therefore possibly increase rents, and therefore property value and overall financial performance?
10. As mentioned, I don't think FHA loans can be used for commercial multifamily in the same way a for residential.
11. What is your financing vehicle?
As others have mentioned, you may have a good deal on your hands, but there likely needs to be more rigor for us to offer an opinion. Good luck with everything and I'd love to hear more about your property!
FHA is an owner occupant loan. 1-4 units only. A 9 unit property is a commercial property and needs commercial financing.
So, this is a much longer conversation that we can have here. While some folks are saying that no opinion can be rendered based on insufficient data, I think there is more than enough info to walk away.
$4,800 of GSR is $533/month per unit. There are 2 truths relative to this:
1. If the most you can get is $533 this is not an economically stable market, which means you will have trouble both driving rents higher and driving valuation higher.
2. $533 is not enough to cover OpEx, CapEx, Debt Service, and Profit. The numbers are pretty consistent on that.
Combination of these two points leads to disaster over time.
I don't think this is a great deal :)
"Why is owner selling" is always my first questions when I buy a used car from a private party -- makes sense that it should be the first question for an investment property too. That, and "would I want to live here", and "would I want these tenants as my neighbors".
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