Hello all!

Im looking to get into multifamily investing whenever one comes along that seems to work. I'm looking for a little assistance in what to look for in a few deals. 

I happened to find an 8 unit for sale that is actually within walking distance of my house, I'm familiar with the area, I drive by this building every day, twice a day.

8 Units - Built in 2014

List price $1,185,000

4x 3 bedroom 2.5ba

4x 2 bedroom 2.5ba

Rents range from $950 to $1195. One unit is vacant.   "Guessing" 7385 current rental income.

11,392 sq ft

Taxes: $8,546

Owner currently pays water, although units are individually metered.

I'd partner with someone else on this who is also interested in multifamily and likely go for a commercial loan if I understand correctly with that many units. I'd likely use a property manager for the units (10%)

I don't have rent rolls or expenses yet but I think they are available. I just wanted to get a conversation going. I appreciate this community's feedback greatly. Open to any and all criticism and discussion!

Long term goal is continued acquisition of cash flowing multifamily units to achieve financial independence for my family. I understand this property alone will not accomplish that task. I currently own my primary residence and another SFR out of state which is leased with a property manager. That property has equity, although taxes just destroyed my cash flow until next lease renewal.

Again thanks for ANY help.

-Mike

Sounds interesting... but location location... is it in an improving area? What's your day job that you don't want to self-manage something you go by twice a day? Just some basic questions - seems interesting for sure

Originally posted by @Jamie Rose :

Sounds interesting... but location location... is it in an improving area? What's your day job that you don't want to self-manage something you go by twice a day? Just some basic questions - seems interesting for sure

Jamie,

Thanks for the reply. I think the area is improving. property values at least for SFHs have risen considerably since I've moved here. The city was rated favorably in the latest best places to live in the US article. There are multiple other complexes of similar style going up right now within a very small radius. I think that speaks for demand. Im currently active duty military so I can't guarantee how much longer I will live here due to my job. I could be out of here as early as next year. Property management, although expensive, is very convenient.

-Mike

@Mike St. Jean - Where is the property located? The good thing about it being so new is that maintenance cost should be lower. One thing to keep in mind on a commercial loan is the terms are shorter and not always amortized over 30 years. I am not a lender, but I would check with a couple to see what kind of loan products are available for an asset this size in this area. They usually have 5-10 year terms amortized over 20-25 years. They also require the DSCR (debt service cover ratio) to be 1.25 in most cases. That means that your NOI needs to be about 125% of your debt service cost. so if your NOI is $5,500 then your debt service couldnt be more than about $4,125.

If you are interested in MF you should ask for the T-12 and rent roll and do some analysis on it even if the deal doesnt work out just for the practice. some expenses to be mindful of in addition to taxes and PM are; insurance, water, sewer, gas, repairs and maintenance, turnover, trash removal, landscaping, marketing. You also want to plan on putting about $250/unit away each year for reserves that is smart to include in your underwriting. It would be good either way to reach out to the broker and start a conversation and start building a relationship anyway.

If you get all that info and want someone to help look at the numbers let me know. I enjoy the underwriting process and would be happy to give you some feedback on it.

Rent to purchase price ratio is very low.  Unless you have a pile of cash to put down, this alligator is going to eat your funds up quickly.

Just to give you a quick breakdown. Expenses range from 30% to 50% of gross rents. Let's assume the lowest possible expenses of 30%. My guess is that is a VERY low estimate even for newer units, but for argument sake we'll take the best scenario. Your guess for rents is $7385. Taking out $2220 for expenses leaves you $5165 for debt service. About the best commercial terms you'll get on a full recourse loan is an 80% LTV, 25-year amortization. Let's say you negotiate down to a flat $1.1M sale price ($220,000 down; $880,000 financed) and get a good rate of 4.5% giving you a monthly debt service payment of $4,900. Your after expenses and debt service cash flow is negative $1,200 to positive $300.

Why do you love this deal enough to make such a low/negative return?

One word about paying water: don't!  I used to have a duplex that was master metered.  Water was typically $60/month.  Then one month I see a $600/month water bill.  ONE running toilet can easily waste that much water.  Guess who paid?  Me.  Tenant says, "oh yeah, I meant to tell you about that...."    Imagine that kind of mentality replicated by 8 units.  I subdivided that water 2 months later.  Tenants can/do waste amazing amounts of utilities if they aren't on the hook and not think one minute about it...yes, even the "Eco-friendly" millennials.  Word to the wise: avoid units that are master metered for ANY utility or find a way to sub-meter them cheaply.