First potential deal

[Vinet Fils-Aime]

Hi BP community,

I need your help with my first potential deal.

How much should I offer to purchase the following two properties? Since both properties are exactly identical in term of number of units, parking spaces, gross incomes, expenses and so on, I am combining the specs so to provide a less complicated picture.

Asking price: $700,000.00

Total number of units: 8 all two beds one bath and all rented out to long term tenants (Tenants pay water and electric)

Cap rate: 8%

Yearly gross income: $84,000.00

Total expenses: $22,202.00 (Utility: $1,920.00; Lawn: $1,680.00; Pest control: $1,200.00; Insurance: $7,000.00; Taxes: $10,402.00)

NOI: Yearly gross income ($84,000.00) – Total expense ($22,202.00) = $61,798.00

Please advice.

Vinet Fils-Aime

[Jerry W.]

Hey bud I am not very experienced in multi units but your numbers make me uneasy. You have no allowance for vacancy or repairs. Sooner or later someone will move out and you will need to repaint, someday you will need the furnace worked on, or a new roof, or you get a special tax assessment for something. you also have no fund for managing, last but not least unless you have $700K laying around there will be a mortgage payment.

The cost pf payments if you pay 20% down and finance $560,000 at 5% interest for 30 years is over $3000 per month or $36000 per year. Add $8,400 per year each for maintenance, vacancy and management, and you are not making a dime. I wouldn't buy it. If I had $700K to invest I would be sure to buy a better cash flowing property.