Need help determining the right offer for Triplex!

2 Replies

Hey guys! Thanks in advanced for any assistance on this. 

Here's the scenario: 

Seller Asking: $89k (Based on NOI/ Cap Rate, it seemed to be the FMV)

Units: 3 Unit Mix: Three 2 Bedroom / 1 Bath Units. Current Rents: One unit $485 and Two units $550. Market Rents: $652/Unit

Current Annual NOI: $11,886

Actual CAP: 13.36%

Pro Forma CAP: 15.70% (5% Vacancy & Taxes, Insurance, Water,Electric, Gas and 10% Prop Management included assumed) Accepted offer details:

Purchase Price Accepted: $85,000 (Was hoping to come in lower, but we are acquiring off a wholesaler)

EMD: $5,000.00

Rehab Cost: Light to No Rehab Needed ($5k-$10k if needed for Capital improvements)

ARV: $115k - $186k

NOTE: There was actually NO COMPS within a mile radius, so I had to extend out 10 miles and a year back of comps and found only two triplexes that recently sold at and in between those two prices (ARV) mentioned above. This is where I am having trouble, on when the time comes for cash out refi.

Upside Potential and Plan When Acquired:

- Rent Raise $600 + (Will force value and appraise much higher for income based appraisal)

- Continued Section 8 Opportunity (Predictable Cashflow)

- Capital Improvements (Exterior Paint, New doors, Windows.)

- Decrease expenses by water being included in tenants lease.

- With the higher appraisal due to improvements made, we plan to cash out refi after the 6-12 month seasoning, to pay off the first and land better terms to keep long term.


Here's my Question: 

Because there wasn't many comps, if not any at all,  would the appraisal be based on the income the property is making at this point? and or will the few comps I was able to get by extending the radius be used? 

My partner and I are trying to determine if hard money or conventional financing would work better in this situation. We have the down payment and requirements for it, but our obvious goal is to leverage as much as we can.. it seems like going conventional would make our cash on cash much better than a hard money unless im doing the math completely wrong, all though its temporary, the forced appreciation may not be guaranteed? 

Thanks again guys.. hopefully this was enough info to get some good advice on this deal 

Raden,

Three unit buildings are residential so the will appraise on comps and replacement cost. The income is not really a factor. You could get an appraisal for a few hundred dollars to be sure.

Conventional is always a better way to go than hard money of you can qualify.

Originally posted by @Greg Dickerson :

Raden,

Three unit buildings are residential so the will appraise on comps and replacement cost. The income is not really a factor. You could get an appraisal for a few hundred dollars to be sure.

Conventional is always a better way to go than hard money of you can qualify.

 Appreciate the response Greg. I figured that would be the best choice, however.. can't it limit growth of portfolio if our funds continue to get exhuasted with the down payments vs. refinancing out to pay off the hard money lenders..