Multi family - Tri Plex - is it worth it?

Question

My broker brought me a deal for a Tri-Plex , I’m wondering if you all think it’s worth pursuing.

Here’s the breakdown.

Purchase = 200k

Rehab = 20k

2 units rent would bring in $750ea

1 larger unit would bring in $1000

Not a lot of property maintenance in terms of landscape.

Estimate on Water, trash would be $200

Estimating 5% vacancy cost

I would not be using a property management company to start.

The ARV would be apt 300k.

Thoughts on this deal?

I know another buyer has an offer in as well so if it is a decent deal what’s the highest you would go to win the deal?

Thanks for any and all advice.

Carlos.

Michael Noto · Answer

@Carlos Soto If you are looking for a long term buy and hold property I think the numbers on this are solid. Not amazing, but definitely a nice addition to a long term buy and hold portfolio as long as the area and tenant quality are at least average to good.

You are looking at a $2500 rent roll on a $220k all in house and I am assuming the property taxes in NM would not be so high that it would kill the deal.

Larry Turowski · Answer

@Carlos Soto This is the way I look at it, assuming you're 100% correct on your numbers of $20K rehab and $300K ARV, this is a decent flip.   My personal criteria is 75% ARV - Rehab or better.  That would put me at a purchase price of $205K.

So even it you don't want to rent it you could flip it.  Rental returns are not bad.  You could refi out of it, get most of your money back and do it again.

Frank Wong · Answer

If your analysis of repair cost of $ 20k, $200k acquisition, and $300k ARV is correct then go for it.

Carlos Soto · Answer

@Steve K. Thanks Steve, I sent you a direct message to try to get some additional insight. Seems like the other offer another investor made will most likely win out on this deal anyway.. I’m going to make an offer on a SFR Friday if all looks right during the walk through which will be the 3rd property that I’ve tried for. Seems tough to win out for me so far.

Steve K. · Answer

@Carlos Soto If everything goes perfectly and you think the area is likely to appreciate then the numbers makes sense, albeit marginally. However in my experience nothing ever goes perfectly, so personally I’d double the rehab budget and pass unless you are certain you can get at least 350-500 per door to CYA. I’d also double the vacancy to 10% and build in PM fees 10-12% for safety even if you plan to self manage, in case you end up not managing it for whatever reason you should have that built in and put it in a reserve fund. Having some room for error is key when starting out. If your best case scenario is 100/door with only 5% vacancy and no PM fees/variance/cash reserves being funded monthly, there’s a high likelihood you’ll be in the red in my opinion based on the info provided. The age of the building, anticipated trajectory of rent in the neighborhood, and scope of the rehab would give us a better chance of offering sound advice. You can sharpen your pencil if you get it under contract of course, just make sure to have an inspection clause and do major due diligence on the property, the neighborhood, the local job market, everything seeing as any little thing will make this a negative cash flow situation. Double check any numbers your broker or anyone else feeds you, and really dig into everything during inspection/ DD.

Dennis M. · Answer

@Carlos Soto

I would not pay 200 grand to make only a hundred bucks a door but to each his own . That 200k cost and 300k arv seems a bit optimistic . Is it really correct on that ?

Carlos Soto · Answer

@Frank Wong Thanks Frank, I’m going to put an offer in today, I was just speaking with my broker and he said the bank told him the other offer they have is a “solid” offer...We’ll see what happens, if they come back asking for best and final I’m thinking 205k will be my limit. Not sure if it’s worth offering full asking of $216k.

Carlos Soto · Answer

@Larry T. Thanks Larry, I’m putting an offer today of $198k and see how it goes from there, the bank is asking $216k.

Carlos Soto · Answer

@Michael Noto Thanks Michael, yes the neighborhood is definitely average to good. Taxes are not bad in NM.

Carlos Soto · Answer

@Kim Wendland Thanks Kim using the bigger pockets calculator and the 50% rule feature it shows it cash flowing $343 a month.

Multi family - Tri Plex - is it worth it?

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