Madison Suburb Multifamily Deal Analysis

13 Replies

Hey All -

I'm trying to analyze my first "off-MLS" deal and would love your thoughts. What am I not taking into account and what assumptions would you change? I'm expecting to do a traditional 20% down mortgage (and looking to do seller financing for the 20% down) but am open to other options including a VA loan or a more "creative" option.

- The seller has 2 duplexes that appear identical in Columbia county between Madison and Lake Wisconsin.

- The pro forma rent is listed for $975 / month (estimated from gross income).

- Each unit is 3BR / 2BA,1200 square feet.  Each unit has it's own 2 car garage.

- Taxes in 2015 were $5500.

- All utilities are paid by tenants.

- The seller has up to 10 more units available in nearby towns between Madison and Lake Wisconsin including an 8-unit and another 2-unit.  Maybe a better deal could be made by buying more units from the same seller?

- Each duplex is offered at $225,000.  I ran the BP Rental Calculator with the assumptions:

Vacancy: 10%

Repairs & Maintenance: 10%

Capital Expenditures: 10%

Property Management Fee: 10%

Annual Income / PV / Expenses Growth: 0%

Sales Expenses: 0% 

Having never bought a unit, I could definitely use any insights into the assumptions for this area.  What would you change?  Thanks in advance!

how are you getting a 175k purchase price from 225k? Is that just what you plan on offering? The calculator isn't accounting for the payments you will need to be making for seller financing which will drop your cash flow. 3.5% is a low estimated interest rate with the market right now. 30yr are up to 3.75+.

The r&m and capex seem high at 10% each. Vacancy seems a bit high too, you are expecting each unit to turn over once a year and take a month+ to fill?

I will guarantee if you look harder you can do much better than that, yea Madtown prices are nuts, but if you looked to some of the surrounding "bedroom" communities, you will get the same or close to th same rent for half or less what your planning to pay

Like Scott said, you can do better.

I should have added that rent of $1900 for a 225k prop in Wisconsin is not good.

I can get $1,800-$1,900 on the duplex I just got an accepted offer on for 170k which is still not the best in terms of investment opportunities, but I'll be living in half, so the quality of life aspect and the rareness of the B+ neighborhood larger duplexes in my area sold me on it.

It seems 'okay'.  But honestly, it's not enough skin on the bone in my opinion.  What are other similar properties appraised at?  Can you reduce the downpayment, collect the cashflow then finance in about 5 years?

@Rocky Jones to give you an idea, I only buy SFR's, I like to be all in purchase and rehab, sub $35K (worth $70K+ post rehab) with rents at $700-800/ mo. they are around, I purchased 7 of those this year so far. your numbers dont allow for any error, or even the slightest market correction.

If you aren't getting at least 1% in the better neighborhoods in Wisconsin, I can't see how you will be making any money. This isn't Cali. I bought a 46K 5-Plex that rents for $2300 and a $35K Triplex that rents for $1500 last month. Granted these are 100 year old buildings, but for an additional $150K purchase price for the same rent income - why?

@Chris Heeren are those off MLS purchases, or did you snatch them up the day they listed? That's a combined 81k for 3,800 in monthly rent.

I haven't been looking long (1 month maybe), but so far the best cash flow I've seen is a potential 115k for $2,300 rent in central wisconsin.

10% for cap EX, vacancy, and repairs and maintaince seem a little high, I do think the 5% is more accurate.

My quick calculations show using the 5% for cap EX, vacancy, and repairs at a purchase price of 175,000 would yield a cash-on-cash return of 8.5%.  That is okay but not great unless there is something else going on with property, such as rents being well under market, or a new roof and furnace which would suggest a lower than average Cap Ex.  

You say this is an "off-MLS" deal. Did you get this lead via direct mail or what? The purpose of getting off-market leads is to find better deals than you would normally via the MLS. And to do so, you try and target motivated seller whether those be owner-occupants or landlords. Owner occupant can be everything ranging from probate, absentee, back taxes while landlords can be target based on recent evictions, getting too old to manage properties themselves, etc.

These numbers definitely do not support this being a motivated individual. Why does this landlord want to sell these units? If they are not sufficiently motivated, you need not bother anymore.

And as Chris said, you are barely above 1% on Rent to Value, your Cash on Cash is around 2%, and your DCR isn't even above 1.20. Here in the midwest, you need to shoot for higher rent to value ratios than you would on the coasts and they are certainly attainable.

So to answer your question, no this is not a "deal" with the numbers you presented. However, there are better ones out there, you just need to keep looking. If you are looking off-market, figure out ways you can target motivated individuals in your desired investing area. There are more than enough suggestions here on BP of how to do sp. Kudos to you for taking the first step as that is often the most difficult. Don't manipulate your own numbers to make a deal work but rather manipulate the deal to meet your own requirements. If you can't do that, then you need to move on.

What a great thread.  I am in line with the other posters.  I made the mistake of manipulating the numbers to meet some of these "rules" and I've been paying for it (literally) over the last two years.  The deals are out there, you just need to stay persistent.

@Cole Swartz , thanks for the great input. The "Off-MLS" comment meant that an agent sent it to me a couple of weeks before it eventually goes on MLS. I'm with you on the numbers not working out for the list price.

I really appreciate all of the comments for what you guys use for assumptions when using things like the BP Rental Property calculator in the Midwest.  Finding "good" numbers for a lot of the inputs seems to be one of the harder things when just getting started.

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