Have an amazing cash flow multifamily to buy but there one problem
Hi fellow BP nation, I would like your opinion on this scenario.
I am in discussion with a seller right now on an 8 unit property: (4) duplex's. The numbers work, and are as follows:
Purchase price: $340,000
25% down: $85,000
3% closing costs: $7,700
Property Tax/ yr: $1,400
Insurance/ year: $1440
35% of rent allocated to property management (myself), Repairs, maintenance, vacancy
Mortgage: 5% interest 30 years local lender. P/I: $1,369/ month
Currently 100% occupied, with 2 long term tenants: the remainder are 1 year leases.
These are 2 bedroom, 1 bath units that rent for $628/ month each unit. The property is very clean, no obvious deferred maintenance. Knock out roses, drift roses, crepe myrtles planted around the homes. Parking is adequate, and taxes are great. Location is 15 minutes from my primary residence.
Initial out of pocket costs: $92,650
Monthly expenses: $3,363
Monthly rent : $5025
Cash flow: $1,662/ month
HERE IS THE PROBLEM:
In the city of Jacksonville, Fl., we have both city water and well water. We have both city sewer and septic systems. All 4 duplexes are on 4 septic systems and 1 well. There is a push to convert all properties eventually to city and do away eventually with septic systems and wells. The conversion is at the cost of the homeowner, and can be mandated by the city to comply. A recent voluntary conversion in our neighbor cost the home owners $18,000 per home to tie into city lines. This was voluntary, but at some point in the future, it could be mandatory.
I called our local water/ sewer provider (JEA) and spoke to the director of water counter planning. He told me there are no immediate plans to mandate that area where I am considering investing to city water/ sewer. He told me it could happen 10 years from now or never…there is no way of knowing.
I talked to my realtor this morning and mentioned why don't we just offer $260,000 (as it would be $80,000 to convert all 4 duplexes/ 8 units). My realtor presented that informaly to the listing agent, and the agent was "suggesting" that we should go ahead and submit it in contract as the sellers are "eager" to cash out their investment properties (the sellers are a brother and sister who inherited this property and others in September last year when their mom died).
Now, I am getting cold feet all together. The homes are great. The cash flow is great. But, the utilities (specifically if there is a well problem or septic problem that presents OR if the city of jacksonville mandates a conversion).
Furthermore, the due diligence (septic inspections X4, well inspection, home inspections, etc..) could be close to $3,000.
I am seeking thoughts, ideas, comfort, criticism, any words of wisdom to help me commit or walk away.
Thank you all in advance.