Rhode Island Multi Family Investing

16 Replies

Hi everyone, I can tell from reading the forums that there are several talented and knowledgable resources for investors in the Providence RI and surrounding areas. I have been out of investing for a few years to focus on my career and luckily that has been very successful finally. At this point I am ready to rejoin investing in RI and from the looks of it Pawtucket and Woonsocket seems to have what I am looking for.

So my question is to see if these numbers align with what investors are currently seeing, and if not where I should make adjustments in my calculations. The goal would be to find a multi-family for around $250,000 and the following relevant metrics.

Purchase Price: $250,000

Closing Costs: $3,500

Pre-rent Holding: $6,000

Estimated Repairs: $15,000

Total Cost of Project: $247,500

Down Payment: $50,000 (If 15K in repair would try to get purchase price down to 225K) if that then... $45,000

Loan: $200,000 (If 15K in repair would try to get purchase price down to 225K) if that then... $180,000

Cash Needed: $65,000-$70,000

Loan Amount: $200,000

Loan Period: 30 years (If I can I might go for lower, if my current job could support quicker loan pay down)

Loan interest rate: 3.5%

Monthly Mortgage: $870

Rent: Three Units $1000 each, so $3000

Taxes: $300

Insurance: $90

Vacancy: $150

Repairs: $150

Cap-ex: $150

Water/Sewer/Garbage/Gas/Snow Removal/Lawn/Electricity/Cable: Tenant pays

Property Manager: $300

Total Expenses: $2,010

Cash Flow: $990

CoCROI: 16.9%

Does this seem reasonable? Am I missing something here??? Thanks for all of the help!

Hi @Mike DeMille , congratulations on your initiative to take the plunge back into real estate investing!

I think you are outlining all of the expenses, which is a fantastic start!  So many people forget all the little things that need to be paid for.

For a multi-family, you will likely be paying some of those utility bills that you noted you'd pass onto the tenant.  While you might find a MF that has separate electric and gas meters, water and sewer are typically paid by the landlord.  In addition, snow removal and lawn care is typically under the realm of the landlord as well (you can outsource that to the property management company or outsource it on your own).  I'd suggest factoring that into your expenses.

My only other note is that it may be difficult to predict rents until you actually identify a property.  $1000 is warranted in some areas of Pawtucket and Woonsocket but not all, and it also depends on your mix of units (i.e. one-bedroom apts don't usually rent for $1K).  Unless you are only specifically looking at properties that you know will bring in that income, expecting $3K per month might be high.

Those are the quick things I spotted in your post, and I'm sure others will chime in.  You're on the right track...good luck on your journey!

@Mike DeMille thanks for breaking everything down and congratulations on getting started!

One minor thing which made it a little difficult to review your #s is that usually income and expenses are annualized, posted on a yearly basis rather than monthly.

Another is that you may find it’s hard to pass water, sewer, landscaping, snow and trash removal on to the tenants. These are expenses which are usually paid by the owner so you may get a lot of pushback if you try to pass them on. Also, you’ll ultimately be responsible to ensure those services are provided at the property so you may find that even if you successfully delegate some of them to tenants, you’ll wish you hadn’t.

For example if you delegate yard care to tenants and they don’t do it well enough, you as owner will get the fine. Same thing with snow and trash removal. And if the water is turned off because the tenant didn’t pay and you end up in eviction court you’ll learn that making sure water is always on is an owner responsibility in RI.

Also, your insurance seems a bit low for a three family. Is your number based on talking to an insurance agent or getting a quote somewhere? Taxes may be low as well (should be higher) depending on which property you ultimately buy.

Generally speaking since your scenario has you putting 50K down plus additional cash for repairs and improvements, I think you’ll probably be fine, though I do think you’ll end up making less than your analysis suggests. (You’ll be amazed what kind of unexpected expenses pop up - how about evictions? Cutting trees because of issues with a neighbor? Lead inspections? Etc.)

What I get more worried about when I see new investors doing analyses like this is when I see them putting almost nothing down on the property and little/no budget for repairs. Fortunately that doesn’t seem to be the case here, so again congratulations on taking your first step!

Taxes seem ok for Pawtucket but low for Woonsocket.

Insurance seems too low. I own a bunch of 3 families. That number is what I am paying for some single families rentals.

Loan Interest. That low? Wow. If you can get it go for it.

Loan period. Stretch it out. If you want to pay more you can but if you need the money you don't have to make the bigger payment.

Water/Sewer is a tough sell for the tenant to pay for.

If you can find a 3 family with those rents and numbers it does sound like an opportunity.

Originally posted by @James Lindall :

@Mike DeMille. Congrats and good luck in your renewed initiative. I agree with what’s been replied previously. But at least in Pawtucket the taxes and the insurance estimates seem a bit low.

 James, I agree that the insurance is way too low but the taxes are on point with the 3 families that I have in Pawtucket. Perhaps you are in a nicer area.

Originally posted by @James Lindall :

@Frank Patalano

I am in the Oak Hill area with a 3 family as well and the tax rate has remained the same this year but the evaluations have raised the number over all. So I’m over 4K per year now.

 That's what I figured. We have most of our properties within 1 mile of Central Ave. 

You are getting higher rents though, no?

Thank you for all of the help everyone! It looks like my next actions steps are finding the most accurate annual taxes, reasonable rent, and a better insurance quote. I will definitely report back with these figures. Right now the loan is through Bank of America which I have heard can be very bad at responding but since I have my regular checking, savings, and credit cards through them I receive member benefits which accounts for the loan. Stay tuned!

@Mike DeMille I would have to agree with @Frank Patalano and @Anthony Thompson . I think the taxes and insurance numbers are most likely low and that you will have a difficult time with having water, sewer, and snow removal fall on the tenants as their responsibility. Those expenses unfortunately in the multi family space are typically just a cost of doing business.

More research...

https://www.zillow.com/homedet... ,Insurance: $84/Month, $1,008/year Taxes: $330/Month, $3960/Year

https://www.zillow.com/homedet... Insurance: $87/Month, $1,044/year Taxes: $344/Month, $4128/Year

https://www.zillow.com/homedet...Insurance: $75/Month, $900/year Taxes: $294/Month, $3528/Year

https://www.zillow.com/homedet...Insurance: $84/Month, $1008/year Taxes: $330/Month, $3960/Year

For those of you already renting in the area, does Zillow have any of these estimates right? Should I not calculate this into an estimation and go right to a broker? I saw a BP post on recommended brokers in this area. @Anthony Thompson @Brandon Ingegneri @Frank Patalano @James Lindall

@Mike DeMille insurance still seems low, even with those Zillow links. Taxes seem likely to be more accurate/close. Which makes sense, since taxes are public record but insurance is a fluctuating market with many players.

As a general rule, when in doubt round down for estimated income, and round up for estimated expenses.

You'll do fewer deals, but the ones you do will be safer. And you'll be more likely to be "pleasantly surprised" (make more money than projected) than "unpleasantly surprised" (make less money, or lose money).