Triplex in NY with section 8 tenants already in situ
NY 路 Member since 2024 路 29 posts 路 14 votes
Triplex in NY with section 8 tenants already in situ
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Greg ScottPro Member
Rental Property Investor 路 SE Michigan 路 Member since 2014 路 4k+ posts 路 6k+ votesMy reactions:
- There is no allowance for bad debt or vacancy, which will happen at some point
- Repairs & maintenance are VERY low. In the apartment industry, typically $250-300 per unit per month is held by the banks in escrow, but R&M can be much higher
- Utilities - Is there any common-area lighting? How is water split? Surely there is some expense for the landscaping water that is not covered by the residents.
- Of course, this assumes you are managing the property with free labor. It is always worth looking at returns if you had to hire a PM. Take 10% off your revenue for that.
13 Replies
- 2yGreg ScottPro MemberRental Property Investor 路 SE Michigan 路 Member since 2014 路 4k+ posts 路 6k+ votes
My reactions:
- There is no allowance for bad debt or vacancy, which will happen at some point
- Repairs & maintenance are VERY low. In the apartment industry, typically $250-300 per unit per month is held by the banks in escrow, but R&M can be much higher
- Utilities - Is there any common-area lighting? How is water split? Surely there is some expense for the landscaping water that is not covered by the residents.
- Of course, this assumes you are managing the property with free labor. It is always worth looking at returns if you had to hire a PM. Take 10% off your revenue for that.
- Lender 路 Playa del Carmen, M茅xico 路 Member since 2014 路 2k+ posts 路 1k+ votes2y
Quote from @Helene Goodworth:
Please tell me this is as good as I think it is. I feel like I am missing something. I don't have financing yet but will be getting a DSCR loan for it. List price is $675000 but he said that they would accept an offer. Also, one of the homes can be raised from $1,850 to $2,300 when new owner takes possession.
3 Family House 675000 3 3 Bedroom Apartments Apartment 1 2,205.00$ Apartment 2 HUD 2,300.00$ Apartment 3 HUD 1,850.00$ Total Rent Expected 6,355.00$ 76,260.00$ Expenses School Tax 23-24 3,460.68$ Town and County 2024 2,222.30$ Insurance 3,035.51$ Lawn & Plow 2,400.00$ Repairs and Maintenance Furnaces 1,231.20$ Total known expenses 12,349.69$ NOI 63,910.31$ Cap Rate 9.47% Hi @Helene Goodworth. Congratulations on looking carefully at the financials before buying! (So many "investors" do not.)
Yes, you're missing a few things:
1. In "Expenses" you've missed vacancy and management. We're pretty conservative with our numbers, so we set vacancy at 1 month rent lost every 12 months, or 8.33% of gross rents. Here that would be $6355 annually. Management costs are about 10% of gross rents in our market, so that would be $7626/yr.
2. Is item "Repairs and Maintenance Furnaces" just for the furnaces, or for ALL repairs? Either way, for THREE units, $1,231.20 seems far too low to accurately reflect your annual repair and maintenance expenses.
3. What renovations are required to the property now? These will need to be factored into your all-in costs. EVERY property has some deferred maintenance and unaddressed repairs, and so you'll have to deal with those when you acquire.
4. Cap rate (NOI/Price) isn't a meaningful metric for you here: You instead want cash-on-cash return (Cash_Flow/All-In_Investment), which tells you the rate of cash returned on your invested cash. Even if you bought with all cash and did ZERO renovations or capital improvements, just with the missing expenses mentioned above, your cash-on-cash return would be closer to 6-7%.
You should re-evaluate the complete analysis to see for yourself. It's the only way any of us investors gets better at this!
- NY 路 Member since 2024 路 29 posts 路 14 votes2y
- NY 路 Member since 2024 路 29 posts 路 14 votes2y
Quote from @Greg Scott:
My reactions:
- There is no allowance for bad debt or vacancy, which will happen at some point
- Repairs & maintenance are VERY low. In the apartment industry, typically $250-300 per unit per month is held by the banks in escrow, but R&M can be much higher
- Utilities - Is there any common-area lighting? How is water split? Surely there is some expense for the landscaping water that is not covered by the residents.
- Of course, this assumes you are managing the property with free labor. It is always worth looking at returns if you had to hire a PM. Take 10% off your revenue for that.
Thank you!! These are the numbers that were sent to me by the listing agent. The utilities are paid for by the tenants. They all have their own separate oil tanks/electric meters etc. and there is well water. No communal areas at all.
I thought that repairs seemed very low. The houses are on pretty rough cosmetic condition but the tenants have not shown an interest in any kind of renovations. Due to it having section 8 tenants it needs to be regularly inspected and it just passed another inspection yesterday. They have all been there for years and want to stay in place for as long as possible. I was planning on putting aside money each month to go towards renovations each time someone moved out. I am a contractor will be doing that all myself.
Yes, I would be the PM but of course you're right I should account for that! And of course the vacancy. Would you say 5% would be sufficient?
Thank you so much!!!! I really appreciate your opinion.Thank you!! These are the numbers that were sent to me by the listing agent. The utilities are paid for by the tenants. They all have their own separate oil tanks/electric meters etc. and there is well water. No communal areas at all.
I thought that repairs seemed very low. The houses are on pretty rough cosmetic condition but the tenants have not shown an interest in any kind of renovations. Due to it having section 8 tenants it need to be regularly inspected and it just passed another inspection yesterday. They have all been there for years and want to stay in place for as long as possible. I was planning on putting aside money each month to go towards renovations each time someone moved out. I am a contractor will be doing that all myself.
Yes, I would be the PM but of course you're right I should account for that! And of course the vacancy. Would you say 5% would be sufficient?
Thank you so much!!!! - NY 路 Member since 2024 路 29 posts 路 14 votes2y
Quote from @Mitch Messer:
Quote from @Helene Goodworth:
Please tell me this is as good as I think it is. I feel like I am missing something. I don't have financing yet but will be getting a DSCR loan for it. List price is $675000 but he said that they would accept an offer. Also, one of the homes can be raised from $1,850 to $2,300 when new owner takes possession.
3 Family House 675000 3 3 Bedroom Apartments Apartment 1 2,205.00$ Apartment 2 HUD 2,300.00$ Apartment 3 HUD 1,850.00$ Total Rent Expected 6,355.00$ 76,260.00$ Expenses School Tax 23-24 3,460.68$ Town and County 2024 2,222.30$ Insurance 3,035.51$ Lawn & Plow 2,400.00$ Repairs and Maintenance Furnaces 1,231.20$ Total known expenses 12,349.69$ NOI 63,910.31$ Cap Rate 9.47% Hi @Helene Goodworth. Congratulations on looking carefully at the financials before buying! (So many "investors" do not.)
Yes, you're missing a few things:
1. In "Expenses" you've missed vacancy and management. We're pretty conservative with our numbers, so we set vacancy at 1 month rent lost every 12 months, or 8.33% of gross rents. Here that would be $6355 annually. Management costs are about 10% of gross rents in our market, so that would be $7626/yr.
2. Is item "Repairs and Maintenance Furnaces" just for the furnaces, or for ALL repairs? Either way, for THREE units, $1,231.20 seems far too low to accurately reflect your annual repair and maintenance expenses.
3. What renovations are required to the property now? These will need to be factored into your all-in costs. EVERY property has some deferred maintenance and unaddressed repairs, and so you'll have to deal with those when you acquire.
4. Cap rate (NOI/Price) isn't a meaningful metric for you here: You instead want cash-on-cash return (Cash_Flow/All-In_Investment), which tells you the rate of cash returned on your invested cash. Even if you bought with all cash and did ZERO renovations or capital improvements, just with the missing expenses mentioned above, your cash-on-cash return would be closer to 6-7%.
You should re-evaluate the complete analysis to see for yourself. It's the only way any of us investors gets better at this!
These are great things to know. Thank you. I am going to rework it and have it as 'worst case'. I have to stop being such an optimist! Haha
The tenants have expressed that they would rather have the apartments as they are instead of being renovated. What would you do in this situation? One has been updated but the other two are pretty retro.
I'm going to figure out my Cash on Cash and try posting again.
Thank you!
- Lender 路 Playa del Carmen, M茅xico 路 Member since 2014 路 2k+ posts 路 1k+ votes2y
Quote from @Helene Goodworth:
Quote from @Mitch Messer:
Quote from @Helene Goodworth:
Please tell me this is as good as I think it is. I feel like I am missing something. I don't have financing yet but will be getting a DSCR loan for it. List price is $675000 but he said that they would accept an offer. Also, one of the homes can be raised from $1,850 to $2,300 when new owner takes possession.
3 Family House 675000 3 3 Bedroom Apartments Apartment 1 2,205.00$ Apartment 2 HUD 2,300.00$ Apartment 3 HUD 1,850.00$ Total Rent Expected 6,355.00$ 76,260.00$ Expenses School Tax 23-24 3,460.68$ Town and County 2024 2,222.30$ Insurance 3,035.51$ Lawn & Plow 2,400.00$ Repairs and Maintenance Furnaces 1,231.20$ Total known expenses 12,349.69$ NOI 63,910.31$ Cap Rate 9.47% Hi @Helene Goodworth. Congratulations on looking carefully at the financials before buying! (So many "investors" do not.)
Yes, you're missing a few things:
1. In "Expenses" you've missed vacancy and management. We're pretty conservative with our numbers, so we set vacancy at 1 month rent lost every 12 months, or 8.33% of gross rents. Here that would be $6355 annually. Management costs are about 10% of gross rents in our market, so that would be $7626/yr.
2. Is item "Repairs and Maintenance Furnaces" just for the furnaces, or for ALL repairs? Either way, for THREE units, $1,231.20 seems far too low to accurately reflect your annual repair and maintenance expenses.
3. What renovations are required to the property now? These will need to be factored into your all-in costs. EVERY property has some deferred maintenance and unaddressed repairs, and so you'll have to deal with those when you acquire.
4. Cap rate (NOI/Price) isn't a meaningful metric for you here: You instead want cash-on-cash return (Cash_Flow/All-In_Investment), which tells you the rate of cash returned on your invested cash. Even if you bought with all cash and did ZERO renovations or capital improvements, just with the missing expenses mentioned above, your cash-on-cash return would be closer to 6-7%.
You should re-evaluate the complete analysis to see for yourself. It's the only way any of us investors gets better at this!
These are great things to know. Thank you. I am going to rework it and have it as 'worst case'. I have to stop being such an optimist! Haha
The tenants have expressed that they would rather have the apartments as they are instead of being renovated. What would you do in this situation? One has been updated but the other two are pretty retro.
I'm going to figure out my Cash on Cash and try posting again.
Thank you!
Always glad to offer a critical eye, especially when it comes to the financials!
Yes, you can safely assume that all numbers provided by the listing agent will be ... highly suspect! 馃ぃ You'll want to confirm EVERYTHING!
Also, I'd be very careful that tenants not wanting renovations isn't just code for "I don't want you poking around to see what I've done to this place!" Inspect thoroughly and be on the lookout for unaddressed/unreported repairs!
That said, assuming no tenant damage (and if it won't net you more rent) I wouldn't renovate if the tenants don't want it.
I think the real question is whether the tenants are actually paying market rents.
Good luck!
- 2yAdam BartomeoBusiness MemberReal Estate Broker 路 Cape Coral, FL 路 Member since 2015 路 2k+ posts 路 1k+ votes
Your maintenance is very low. Should be 10%.
You aren't accounting for:
- vacancy 8%
- property management (you might be self-managing)
- utilities (you might not have any)
Bartomeo Property Management4.7150 Reviews - Member since 2020 路 351 posts 路 329 votes2y
Not sure exactly where you are in upstate new york, but those taxes seem low. You likely need to estimate taxes to 2025 levels when your house gets reappraised to purchase price which is what your escrow will be in 2026. Estimating based on running numbers in Rochester, NY, at that purchase price and total rent you probably end up breaking even before accounting for maintenance, vacancy and capital expenses. Without actually running numbers, you'll probably need to get closer to 600k to break even from a cash flow perspective (this all assumes 20% down).
As others have said, you aren't considering saving for capital expenditures or vacancy and the maintenance is far below what I would budget.
- 2yDrew SygitBusiness MemberProperty Manager 路 Royal Oak, MI 路 Member since 2012 路 12k+ posts 路 9k+ votes
The listing agent is trying to get the highest price for their client.
So, they will put a positive spin on everything they can.
You should hire your own EXPERIENCED investor agent!
Logical Property Management4.9459 Reviews - Flipper/Rehabber 路 Rochester, NY 路 Member since 2014 路 1k+ posts 路 1k+ votes2y
You said: Please tell me this is as good as I think it is. I feel like I am missing something.
You should be looking to prove it wrong, not prove it right. You鈥檝e already gotten some good feedback here. This does not pass the sniff test at all. S8 tenants (not bad but price is extremely high for S8 type tenants), house looks rough according to you, absurdly low taxes. I have a feeling you鈥檇 get killed financially if you bought this. Prove me wrong.
And how does this compare to other deals in the area. You should look at 100 before you decide on one. - NY 路 Member since 2024 路 29 posts 路 14 votes2y
Quote from @Larry Turowski:
You said: Please tell me this is as good as I think it is. I feel like I am missing something.
You should be looking to prove it wrong, not prove it right. You鈥檝e already gotten some good feedback here. This does not pass the sniff test at all. S8 tenants (not bad but price is extremely high for S8 type tenants), house looks rough according to you, absurdly low taxes. I have a feeling you鈥檇 get killed financially if you bought this. Prove me wrong.
And how does this compare to other deals in the area. You should look at 100 before you decide on one.I was looking for an investment property that fell into the 1% rule as anything higher is basically impossible so close to NYC. The rent roll was so close to 1% of list price (which in my opinion is too high to start with) that I was instantly interested.
The $2,300 rent for a 3 bedroom home isn't crazy high in this area. I would of course do my DD to find out if that is actually what is being paid but I have no reason not to believe it as it would be so easy to disprove.
Yes the house looks rough but it is solid. It's rough in the way that they have let their kids draw all over the walls and the kitchen counters are from the 80's. These kinds of things are super easy for me to fix as I can do it all myself when ever there is turn over. I would of course put money aside for this as I know it will need to be done eventually.
I am going to look into taxes as I agree they seem low. The Realist.com data states this;
Total Tax, Less Exemptions, Plus Relevy $5,683 Annual Tax $7,228 I'll do a little more digging on that.
- NY 路 Member since 2024 路 29 posts 路 14 votes2y
Quote from @Peter W.:
Not sure exactly where you are in upstate new york, but those taxes seem low. You likely need to estimate taxes to 2025 levels when your house gets reappraised to purchase price which is what your escrow will be in 2026. Estimating based on running numbers in Rochester, NY, at that purchase price and total rent you probably end up breaking even before accounting for maintenance, vacancy and capital expenses. Without actually running numbers, you'll probably need to get closer to 600k to break even from a cash flow perspective (this all assumes 20% down).
As others have said, you aren't considering saving for capital expenditures or vacancy and the maintenance is far below what I would budget.
Thanks Peter! I appreciate your input. I was actually thinking of coming in under $600,000. I think it's over priced and the listing agent knows it.
Can I ask a silly question? How do I find out how much the taxes should be in they are indeed too low?
- Member since 2020 路 351 posts 路 329 votes2yI estimate it by taking the rate from the previous years estimate (total taxes paid/assessed value) and multiple the rate by the new value鈥攚hich is going to be the purchase price. Usually the tax assessor for the town will have that number somewhere online. Where I am at, the number typically comes in at 4.5%.
Quote from @Helene Goodworth:
Quote from @Peter W.:
Not sure exactly where you are in upstate new york, but those taxes seem low. You likely need to estimate taxes to 2025 levels when your house gets reappraised to purchase price which is what your escrow will be in 2026. Estimating based on running numbers in Rochester, NY, at that purchase price and total rent you probably end up breaking even before accounting for maintenance, vacancy and capital expenses. Without actually running numbers, you'll probably need to get closer to 600k to break even from a cash flow perspective (this all assumes 20% down).
As others have said, you aren't considering saving for capital expenditures or vacancy and the maintenance is far below what I would budget.
Thanks Peter! I appreciate your input. I was actually thinking of coming in under $600,000. I think it's over priced and the listing agent knows it.
Can I ask a silly question? How do I find out how much the taxes should be in they are indeed too low?
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