This is my first time posting in the Analysis thread. I have the opportunity to purchase a 6 unit in Northern GA, about an hour north of Atlanta. I have been in talks with the seller and walked through a few units, gotten an appraisal and an inspection. Everyone seems to be leading me away from this, due to deferred maintenance issues. I also cannot get the seller to provide me with a Schedule E or his bank statements so that I can confirm the actual costs to run this multi. The owner is older, and bought the MF in 2007 for cash and has run it as a side project. He also owns some commercial and SFR’s in the area from what he has told me.
Anyways, I’ll let the numbers speak for themselves, this is my first MF and do not want to cloud my judgment with excitement. Please see below. All opinions are welcome!
Finance- Owner finance with 15% down ($36,000) 5% APR with 30 year Amortization with 7 year balloon
Monthly P&I + Tax and Ins- $1507
Gross rents- $2825 - $500 for 2/1 X5 units and $400 for 1/1 unit
Monthly Expenses- $430
Cost of repairs (Deferred Maint)- $15000 (high estimate)
Cost of upgrades to units- $15000 (high estimate)
Market rent- $650 for 2/1 and $500 for 1/1
Pro Forma Rent- $3750
@Bobby C. You should see a Big red flag if the owner will not provide the requested information think twice before advancing
I get 113,000 at a 10 cap. Take out 30,000 for your estimate costs the price drops to 83,000.
"gotten an appraisal and an inspection."
Would NEVER pay for these costs until I had seen books, bank statements, and IRS tax transcripts from taxing authority to verify no funny business going on. Next time do not do it this way and you will save money.
30 year amort. is good but make sure it is not interest only. 7 year term is good time to pay down the debt with cash flow. 15% down on owner finance isn't good. With 5% more you can get conventional finance. Is the seller making you have a personal guarantee or recourse loan??
Sounds to me like an experienced investor dumping a dog on you and taking a large down payment to make it painful for you to walk once you are trapped owning this thing.
I wouldn't have spent more than 60 seconds on this the minute I heard they will not show me records.
Unless this 6 unit is sitting on a large piece of land where the building is older and you could tear it down and build for different redevelopment or rebuild higher units in this great location (hopefully) then there is no reason to buy.
This just looks like a loser all around to me. It's overvalued, will take a lot of your money, and the upside isn't there. It's great for the seller and horrible for you.
It has been a huge flag for me...The broker actually told me that he had never heard of providing bank statements and Tax returns. Thanks!
Thank you, I had it figured as a 7-8 cap when I did the numbers then ran it through the BP rental analysis.
I had been thinking of living in 1 unit for a year or so as I raise the rents then sell for a higher price. I did not think it would be as low as you put it.
I guess my search continues. Thank you both again
"The broker actually told me that he had never heard of providing bank statements and Tax returns."
Scary, very scary !
Of course you get this with smaller properties where an agent who is not experienced with commercial happens onto a small listing and has no clue what they are doing which is obvious by their answer.
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