First time investment on a triplex

4 Replies

I found this triplex property for sale for $299,900 in Brigham city Utah. I think I can get the seller down to $275-285. I’m just curious if you guys think this deal would be worth it or not? Or what type of financing I should do. 203k or subject to? Should I put down 20% or as little as possible. Also the agent sent me over a break down and he says the property is 6 cap but what do you guys think? I attached the break down as an image if you guys want to take a look! Thanks for the help.

My advice is to search this website and run the numbers for yourself. You need to decide what Cap rate You want. Everyone is different. For example, I like 5-10% cap rate but, I have seen some REI on YouTube who wont buy anything that will give him less then a 10% cap rate.

@Duane Johnson  "Worth it" means many different things to many different people which is part of what makes real estate investing interesting.  Some people will look at a building and see a dump with a low return on investment while others will see a huge opportunity to renovate and make great money.

For this triplex here are some questions to ask yourself:

  • Do I believe in the local economy (this is important as I believe any real estate investment is fundamentally a bet on the local economy)
  • Do I think rents are going to steadily rise over next 5 to 10 years?
  • Do I think this particular area of town will improve over next 5 to 10 years?
  • Do I think the existing rents are about market rate or is there room to raise them?

Let's assume these number are all correct and the cap rate is roughly 6%.  Personally, I think 6% cap rate is OK but only if I think there is some significant upside over the next 5 to 10 years either through higher rents or adding units. Does the zoning allow for more units?

You have probably heard how the stock market has historically bested real estate over long holding periods. This has some truth to it if you are paying cash for real estate. Real Estate usually beats the stock market once you factor in "leverage" which is exactly what you are doing by getting the property financed.

That's a long-winded way of saying put as little down on the property as possible while still making sure it comfortably has positive cash-flow.

Here are 2 scenarios assuming you can buy at $285K

1. 20% down @ 4% interest
Down payment = $57K
Net Operating Income = $1620 per month (per the screen shot you posted)
Debt Service = $1400 a month including taxes and insurance
Cashflow = $220 per month
Cash on Cash Return = 4.6%

2. 10% down @ 4% interest
Down payment = $28K
Net Operating Income = $1620 per month (per the screen shot you posted)
Debt Service = $1662 a month including taxes and insurance
Cashflow = -$40 per month
Cash on Cash Return = 0%

After running these numbers the triplex doesn't really look like such a great investment to me. At least not at this price.  Even with 20% down I am only making 4.6% on my cash invested.