help analyze potential first deal

10 Replies

Hi BP,

new investor from Pittsburgh, PA area. A friend alerted me to a potential first deal up the road from him. he is an investor, all SFR in this same town, where is very active in the community, i.e. on board, volunteer fireman, etc. he originally wanted this property almost 20 years ago. At that time, it went for 70k, now listed for 339k. the town has had some recent growth from medical center growing, and increase in some industry in the area. he told me they expect a food manufacturing plant to be built in the very near future. additionally, the county courthouse is in town. The landlord wants to retire to NC per RE agent.

The building is a quadplex, built in 1910, probably an old school house one block from main street which has shops and is very walkable, in fact while town is very walker friendly. it is situated about 30 minutes from Pittsburgh airport. Currently,  all units are rented and the vacancy has been low.

they are asking 339k, Zillow estimates 240K.

gross rents 27k

2unit are  1/1 $550 month

1 unit 3/2 $ 600 month

1 unit 2/1 $600 month

expenses:

elec 40

W &S 60

garbage 45

insurance 65

taxes/month 365

pls excuse me if I forgot any number or you need more info

I have put it through the calculators at asking price and at 250.  From my calculations, even at 250k it is around the 1% rule.(2%? rule).  I would probably have to do traditional financing to afford the deal.

some of the thoughts/concerns I have are:  

with the low vacancy, should the rents stand an increase?

there is a massive basement, with a 15x15 area portioned off for w/d and small storage closets for all units. the rest of the basement has concrete floors in poor shape with the mechanicals.

the electric is divide already, but from what I am told the electric company will only allow for one bill, rather than splitting it.

it is a good school district as well. 

thanks for your thoughts/comments??

sorry, thoughts on trying to get seller financing? guess depends on seller...friend made that point that she could always have it professionally managed...

I would see if the rents can be raised. I'd like to think you can get more for the 3/2 unit than the 2/1 unit and maybe even your 1/1 is under market rent.  Check the comps and see if you're in line with the market.

Also don't forget to account for expenses such as property management, vacancy, CapEx and maintenance.

Lastly you need to know how you're going to finance the deal in order to properly analyze it.  Without knowing that you can't determine your bottom line in order to calculate your projected cash flow.

Hey I would factor in maintenance and repairs in your expenses as well as capex and management. Especially, since it was built in 1910, I would get an inspection to see if there is deferred maintenance. This can be used to negotiate on price.

@Brian Garrett - thanks Brian, silly mistake, I used the BP rental calculator and put in the following percentages

vacany 5% may be less based on landlord claims

repairs/maintenance 7%

capex 3%

8% management

comes out to monthly:

vacancy= 112monthly

repairs = 157 monthly

capex = 67 monthly

management 180 monthly

 total expenses =1108

total rent currently = 2250 per landlord

If interested, I would probably go with traditional financing, I don't want my cash locked up in one property, I am very interested in properties that are more BRRRR method friendly...but I thought I would at least take a look at this.

@Rob Beardsley   thanks Rob, beginners error, I posted the numbers above.  thanks for the input, in the redfin add they state no knob and tube wiring, phew... and posted years of water heater, hvac etc.

Updated about 1 year ago

should read they posted how old the hvac units are for each apartment

@John Bucknum Haven't looked at it but looks like a gorgeous property. WAY overpriced though. I wouldn't buy that as your first deal even at 250k is a stretch when it comes to cash flow if the owner ever would consider selling it that much lower than list price. You can find much better cash flow in other areas near there if that's where you're potentially looking. People overpay for properties in Beaver since it's such a nice town. Not very good for cash flowing rentals. I would say find something that'll cash flow better on your first one to set you up better on buying future properties. Unless of course you are buying it as a house hack situation and want to live in Beaver for cheap/free.

@Jeremy Taggart

Thanks jeremy, really apprecite the insite, i think like most first timers, i was getting enamored with property and trying to make it work. 

Im interested to see how much it goes for.

Thanks again

@John Bucknum no problem, and yeah me too. I bet someone looking to house hack will buy it since it's in such a prime location. If you're looking for multis to buy Butler isn't a bad area for them in the nicer parts of the city. Also you could look nearby Beaver such as Beaver Falls. There is a decent amount there. The tough part with multis is making sure the neighborhood is good enough that you'll manage to be able to get decent tenants and still get good cash flow.

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