1st purchase of Multifamily Property

6 Replies

Hi Guys, 1st time home buyer. What do you think of this deal?

List Price 249,000. 3 Unit Multifamily , one car garage

Expenses: Taxes 12,000, Sewer 1,000, Insurance 1000, Advertising 500, Hotwater 2000 = 16,500 Annual

Gross Income :Unit one Rent 1200, Unit two 1200, Unit three 800, garage 150 = 40, 200 Annual

9.5 Cap Rate I think

4.5 down using 1st time home buyer ( owner/ occupant) = 11,205

4.5 Interest

Closing cost 10, 0000

20, 0000 Rehab- Paint, kitchen and bath fixtures, tile work

I calculate NOI at 23,700 - 14, 388 (mortage) = 9, 312 cash flow annual

This is all pro forma. Would you do this? First two to three months is a wash on profits because we will rehabing. Plus I will be living in Unit three. The rents are pretty much on the money though.

Thanks, Mike

I get a cap rate of about 5.5%. The purchase + the rehab is about $269,000. Expenses not included in your numbers are Vacancies, management costs, and maintenance/Cap. expenditures. I am estimating the 3 as 5% of rents for vacancies, 10% of rents for management and $3,000 for maintenance.

Your cost of money is 4.5% leaving a spread of 1 percentage point. I like to see the number closer to 3.

Good Luck.

Bill

Lets assume a purchase price of 5% less than listed ($236,600 - mortgage amount) plus $20k out of pocket for renovation. Loan at 4.5% (though will probably be higher with such a low down payment). Rents as stated (including the owner occupied unit).

We will apply the 50% rule and assume self-management. This creates an annual NOI of $20,100 before the mortgage. Less the mortgage payment and the annual 1% payment for mortgage insurance ($188 per month), you have a NOI - Before Tax of $4,102 or $342 per month. Investors generally target $100 profit per month/per door.

You are looking at a cap rate of 7.8% and a cash on cash return of 13.4%.

As an investment property and assuming you can actually renovate four units for $20k, it is a minimally profitable purchase.

But, lets look at from the point of cheap owner living. If we take out you paying $800 per month rent. Can the property pay for itself each month? No. You would end up having to pay around $60 to make up the difference. But, if you look at that as rent then that is some cheap living!

Much of this decision will depend on your ability to get the loan as stated, the actual renovation costs and your personal end game plan.

Simon,

I just wanted to say thank you for taking the time to give me your input. I am still feeling everything out. I'm going to be patient and only take that first plunge when I find that excellent deal. Thanks again.

Originally posted by @Mike Alvarado:
Bill and Simon,

I just wanted to say thank you for taking the time to give me your input. I am still feeling everything out. I'm going to be patient and only take that first plunge when I find that excellent deal. Thanks again.

Your welcome. This could very well be a good deal depending on the area. Check with experienced realtors and see what they say. Also make sure you have gotten pre-approved for a loan and let the loan officer know that you are considering 2 - 4 family/owner occupied. That will change the lending criteria.

As an owner occupied building, make sure that it will be profitable if you move but also consider how owing this property will affect your personal living costs and personal privacy as well. Good luck.

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