I have 3 SFU doing well. First venture into Multifamily. Area Cap Rate 9%, triplex cap rate 8%. Mostly concerned about actual expenses vs BP calculation of 5% each for expenses, vacancy and CapX. This is a VA loan 0 down, although I have $20,000 to chip in if necessary. This property has about 1500 sq ft of asphalt parking lot and the outside of the building needs some minor repairs. The monthly income is $3100 and BP calculator expenses of $2450 - $650 monthly cash flow. I have researched all the possible expenses and they are many. The building built in 1920 - gives some minor concern which I believe will be relieved with inspection and contractor repair esitmate. I just ran across a duplex deal for $38K 50% rule cash flow of $278. The deal may be gone BUT I think about how much more effective I can be with these kind of deals. Is the triplex worth going after? Almost seems to good to be true . . .
@Mark Beeson some deals are good some are not some are too good to be true. Sellers will sometimes cook the books to hide expenses. Its a matter of doing your due diligence. Some investors look for immediate cashflow at different %. You need to see it in two ways whats your short term and long term strategy. Are you holding the property forever? 5, 7 10 years. Is your investment strategy for cashflow only? to accumulate more RE and at what rate per year?
Thanks Guifre. I have a long term strategy / buy and hold. Currently looking for cash flow but reinvesting all until I want to withdraw at some a later date. I think in terms of finding good deals and would buy as many as practical. Cash is challenging for the long term and need to learn more about a lot of things. BP is a big help. Meeting with my realtor this afternoon and will make some progress on this property - to buy or pass as I get necessary info.
First, @Mark Beeson , the 50% rule is not a replacement for actual deal analysis. I'd like to see all the numbers on the 3-unit, before offering any thoughts. 5% each for Vacancy, CapEx, repairs is too low, I think.
Also with a VA loan, you have to intend to use it as your primary residence, I believe.
Thanks to all. I received P&L from current owner and it shows a "profit" of over $5000 for 6 months. BUT utilities are paid by landlord to the tune of $577 per month making this deal a NO deal. Either the current owner has only owned it for 6 months or did a recent refi. At any rate, it doesn't make sense. I feel sure they are having a rough go of it and they are cornered into getting the full asking price. Definitely onward and upward for me. Now looking at a couple of other multifamily.
Don’t look at the asking price. Run the deal backwards to find what you can offer. If they say no, move on.