Is this 6-unit a deal?

Question

Hello fellow BPers, we got this potential 6-unit deal from another investor, and wanted to get your thoughts on the MAO.

Price: seller is asking $360k

Units: 6

Unit Mix:

Three 1 bed's apartments. One 2 Bd apt. and two houses, 5 bed's each.

Financing Approach:

80% Bank

20%

• 10% down payment
• 10% seller financing - terms to be negotiated

Annual Financials:

-5% vacancy (the market is emerging and vacancy is very low - we know this because we own a 4-unit in the same area, purchased from the same seller)

-Rent roll: $55,800 - can be pushed up by $4,800 conservatively after rehabbing

-Property Taxes: $4,277

-Insurance: $1,619

-Maintenance / Capex: $11,160 (projected - 20% of rents)

-Water / Sewer / Utilities: $6,200

-Property Management: $3,600

In summary:

At purchase:

-$55,800 gross income

-$21,903 total expenses

Pro-forma:

-$60,600 gross income

-$22,529 total expenses

We want to get your thoughts on this deal. We are probably looking at another $22k or so in debt service depending on the offer price and interest rate. What should our MAO be? Are there any other concerns?

Thank you!

Stephen Kunen · Answer

@Bob Green Thanks for the quick response. I posted the wrong expenses and made a correction just now. So the income is about $363 per door at purchase and $413 per door pro-forma. Not quite at $500 yet, but relatively close.

@Todd Dexheimer Thank you for your feedback. You are right on about the low expenses. The units are all rented currently so we can cash flow from day one, and plan to improve the units gradually so we don't get hit with huge upfront capital improvements.

Todd Dexheimer · Answer

Looks like a deal to me. Your expenses may be a bit low, but even with that, you are still buying it cheap enough, depending on the up front capital improvements

Bob Green · Answer

If I understand the income after expenses is estimated to be $38071 annual, $3166 monthly.  This breaks down to $527 per door.  My target is typically $500 per door.  This looks like a very good opportunity.