Is this a good deal ?

Multi-Family and Apartment Investing
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Is this a good deal ?

Faysal Alam
Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes

The property is located in upstate New York , it is 2 attached properties with one deed . Total of 4 units. "1's rent is 1000 for a one bedroom with the lease with section 8 across the hall has a month-to-month lease for 900 a month one bedroom the other one is 850 a month one bedroom just moved in month-to-month lease and the one downstairs has a month-to-month lease or rent is 750 " according to current owner for a total of 3500/Month = total of 42k/year . I would be buying with all units rented as currently set up . The expenses are as follows, conservative estimates .

$10k /year taxes or $833/month

2500/year insurance or $209 month

10% vacancy or $350 a month

10% repairs/maintenance or $350 a month

10% cap ex or $350 a month

10% property management or $350 a month (the property is an hour and a half to two hours away do you think it would be better to do it on my own instead of hire someone)

Debt service at $700 with a 20% down payment on 160k . I get a cash flow of $358/month. Is this deal worth doing? Also there is a empty garage that is attached to the property that has potential to become another unit. Also what do diligences should I do. Tenants pay all their own utilities

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Steve Hall
Rental Property Investor · TX · Member since 2019 · 303 posts · 364 votes
7y

@Faysal Alam If you've looked at the P&L and the RR and given us all the accurate numbers, and you've viewed the property and feel it is in a good neighborhood and in good condition, I would say this is an awesome deal. That said, whenever I see an awesome deal, it makes me 10x more cautious. Is it in a flood zone? Are their liens? HOA? Eminent domain? (That kind of thing...)

Make an offer to tie it up. Submit your pre-approval letter with your offer. Put no more than $1,000 down, drag out the inspection time to 45+ days, make sure to add every contingency you can, and then start your due diligence investigation.

Good luck!

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  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @ROTIMI OLUWO ?

    0Reply
  • Charles Mitchell
    Member since 2018 · 103 posts · 48 votes
    7y

    Your Coc would be right around 4% at these numbers. This is also not accounting for garbage. I would stay away. Keep learn/reading/blogging. I always tell people if you don't know if you're staring at a good deal, you're not ready to invest just yet!

    3Reply
  • Chase Louderback
    Real Estate Agent · Luray, VA · Member since 2016 · 459 posts · 293 votes
    7y

    Do you think you can bring the rents of the other units up to the $1000 or 900 mark without much capital?  I would look at that, as well as getting the price down a bit.  How old is this property?

    I think this could still be a deal with the following caveats: 

    1. Need to be able to bump the rents

    2. Check with property management company about billing back for the water/sewer

    3. Get the price down a bit so you are cash flowing a bit more.

    We would want to see about $200/door cash flow and/or 20%+ end of year 1 CoC return. Assuming this isn't a very old property with a bunch of issues, or in a bad area I'd consider doing it for $150/door or $600/mo after all expenses and reserves. I personally wouldn't recommend self managing this property if it is your first one AND 1 and 1/2 hours away. It's a good recipe to burn you out.

    3Reply
  • Jason Triano
    Rental Property Investor · Montclair, NJ · Member since 2016 · 9 posts · 5 votes
    7y

    @Faysal Alam For this deal you would really want to see between $400 and $500 a month cash flow. I wouldn’t even look at a property that did earn me at least $100 per unit in cash flow. That’s a good benchmark to start with. Also look for a really good pro forma template to account for all expenses. It is very easy to miss things like common area utilities. Get the book What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. He has a great pro forma template in there and is really thorough on all measures. Then you can input into the bigger pockets calculators.

    2Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @Chase Louderback the current owner is self managing , renometer says $1000 for a 1 bedroom but 2 of the 1 bedrooms are a bit smaller than the other 2 , I can see bumping up the rent of the 750 to 900 and the 850 to 900 as well but that would only bring the cash flow to $348/month . Which is $87 per door .

    0Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @Jason Triano will definitely check out that book . Haha I ran out of my free rental property calculator uses . The only way to get over a $100 a door is to bump up the rents and self manage

    0Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    What Charles and Chase said. If there is a value add in the future, it's worth considering if the price comes down a bit. Does that area have anything going for it in the (near) future?

    0Reply
  • Will C.
    Rental Property Investor · Richmond, VA · Member since 2016 · 279 posts · 133 votes
    7y

    @Faysal Alam

    Sub par at best unless you can raise rents/income. Or pay less

    0Reply
  • Will C.
    Rental Property Investor · Richmond, VA · Member since 2016 · 279 posts · 133 votes
    7y

    @Faysal Alam

    You will want a PM unless you like having a second job two hours away.

    0Reply
  • Taylor Chiu
    Real Estate Agent · Salt Lake City, UT · Member since 2014 · 473 posts · 230 votes
    7y

    @Faysal Alam

    I think this could be a pretty solid deal, even with the new numbers. If the property is in decent shape and the tenants are decent, then I would recommend putting in the hustle and self managing the property. That will bump your cash flow up to about $500 a month, which is pretty attractive. If you get solid contractors who can do repairs, and teach the tenants to send you pictures and video when things are wrong so that you don’t have to make a trip to check, and then this could still be pretty hands off for you despite self managing it.

    Plus if you increase the rent by a couple hundred dollars a month across the four units, then now you will be looking at around $700 a month in cash flow, which is great.

    Plus your vacancy allowance might be a little on the high end, but even if not the deal should still make sense.

    The only potential red flags are if this area is difficult for filling vacancies. Or if the property is in terrible shape. Outside of that, I think it looks pretty good to me

    1Reply
  • James Allen
    Lender · Los Angeles, CA · Member since 2015 · 184 posts · 92 votes
    7y

    Don't forget to budget for Lawn Care! To answer your question of if it's a good deal or not, I couldn't justify a cash flow of $148/month for a 4-plex not counting trash and lawn care. When you factor those two things, you may find yourself breaking even or possibly slightly negative cash flowing. I always want at least a buffer of $100/door. Now with that said, I'd look more into the trash situation. Some cities will cover the expense of trash. 

    0Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y

    This is a bad deal. $400-$500/month is only $100/unit in a bad neighborhood (well depending on where exactly in Newburgh). You need to cash flow $200/unit/month in a war zone like parts of Newburgh. 

    0Reply
  • John Hickey
    Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes
    7y

    @Faysal Alam it’s possible his water bill is that # but I would ask for proof. My water bills on 3 units is 2500-3000 a year I have two 3 units. I have 2 units that are 1800.

    0Reply
  • Sejj Jackson
    Developer · Birmingham Alabama · Member since 2019 · 20 posts · 12 votes
    7y

    @Faysal Alam I would make the tenants that aren’t on section8 reapply to to update their information and know who’s living in your building. Because I’ve done this before and ended up with tenants from hell.

    1Reply
  • Ryan Beasley
    Real Estate Agent · Augusta, GA · Member since 2017 · 83 posts · 46 votes
    7y

    @Faysal Alam I’m a little confused on how you came to a cash flow of $358/mth? Given your numbers you’re looking at around 750/mth

    0Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @Ryan Beasley it's $148. Look at the updated numbers

    0Reply
  • Eric Carr
    Real Estate Broker · Los Angeles, CA · Member since 2017 · 655 posts · 293 votes
    7y

    You can absoltuely self manage. Get the knowledge and go for that. The deal looks good, but know what youre getting into with section 8

    I'm not preparing you for trouble, just that you need to be prepared and understand what youre geting into 

    0Reply
  • Jeffery M Raju
    Investor · Chicago, IL · Member since 2015 · 7 posts · 1 vote
    7y

    What condition is the property in? 20% (~$8K+ per year) for maintenance and capex seems high unless you're foreseeing a good amount of repairs needed. Make sure you get a professional home inspection before you buy to help identify repairs to invest in (or identify dealbreakers). Adjusting for that realistically will significantly change your pro forma returns. 

    Also I wouldn't try to make the numbers look better by self managing and backing that out of your expenses. Even if you do self manage, pay yourself the property management fee so it's always in your budget. If after a while you end up buying more properties and place a PM, you'll already have accounted for that expense. Self managing would be good learning experience, but proximity is a factor in terms of how much time and energy you want to spend doing that.

    0Reply
  • Kim Wendland
    Rental Property Investor · Pflugerville, TX · Member since 2017 · 37 posts · 20 votes
    7y

    Hi Faysal, hope your due diligence is going well. I do have a few questions before I can form an opinion.

    - what are the closing costs beyond down payment?

    - what is the cost per sq ft

    - what is the age? when was the last reposition? I ask because that will completely drive your maintenance budget.

    - do you have a marketing budget?

    - do tenants pay utilities?

    - do you have rent roll and T12 from seller?

    From what I can tell of the data shared, the key metrics seem ok:

    - CapRate 10.8%

    - Debt Coverage Ratio 1.92

    - Cash on Cash Return 12.62%

    I think these could be overly optimistic though depending upon answers to the questions above.

    Regardless,

    Good Luck and Happy Investing

    Kim

    1Reply
  • Kim Wendland
    Rental Property Investor · Pflugerville, TX · Member since 2017 · 37 posts · 20 votes
    7y

    Oh Hey There, I didn't see the revised numbers. Sorry about that. Most of the questions still apply though.

    0Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @Kim Wendland closing costs are about 4800 , built in 1960 . It's about 4000 square feet

    0Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @Kim Wendland no marketing budget . And no don't have the rent roll just off word of mouth as of now

    0Reply
  • Faysal Alam
    OP
    Real Estate Agent · New York City, NY · Member since 2017 · 150 posts · 26 votes
    7y

    @John Hickey wow big difference ! Where can I find out for sure ? And do you have an idea of how much garbage would be ?

    0Reply
  • Jeff Grove
    Lender · Tampa, FL · Member since 2019 · 21 posts · 15 votes
    7y

    Hi Faysal - I was wondering about the down payment you initially mentioned. If you're seeking conventional financing on an investment property, it's typically 20% down on a single family, but 25% down on a multi. So, the revised number there looks correct. 

     Like you, I'm in the process of looking for my first deal. I highly recommend getting the pro upgrade for a month or two  at least and keep running and adjusting your numbers. Determine the return you want to see and play around with the purchase price and rents to see how things shake out. One thing I've learned is don't be afraid to start low on an offer. You never know someone's motivation to sell. One final thought...if you're thinking of self-managing a property 2 hours away, you should factor in mileage expenses on your vehicle. 

    Good luck!

    0Reply
  • Chuks Erinne
    Rental Property Investor · Atlanta, GA · Member since 2017 · 221 posts · 188 votes
    7y

    @Faysal Alam is the $148 per door? If not. Its not worth it. You need minimum $150 per door net cash flow. Atleast rhats what i would expect at minimum to be worth it

    0Reply
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