There's a 7 unit multi-family in my area for sale I would like a 2nd opinion on.
It just expired from the market @ $185k, it was on the market for 456 days it's assessed at $145k. I was running some comps in the area and the owner is going to re-list. We think the reason it didn't sell is because it was priced a little high, it should be around $150-160k. If the price does go down to the $150k area I may be interested. I haven't seen the inside of the house, I drove by and the outside isn't too bad, could use a new roof in a few years. 6 out of 7 units are rented totaling $3000 and the empty unit could rent for 550-650. I have 20% to put down and taxes are $2300 a year and I would be managing the property myself, and all utilities are paid by tenants. Any advice is greatly appreciated.
Its sound good to me whats the cash flow like? I am having problems finding the right loan at this point for a triplex needs work thou.
@Cory E. Looking over your post I do not see any provision for expenses
Maintenance or property management. I would also ask for the last two years expenses and the current rent roll
Maintenance would be 10%
I would be managing the property myself.
I don't have a list of the expenses per unit
From the information you've given us, it looks like it cash flows - IF the tenants pay for their own utilities. If they don't, then you need to find out how much those are, because even at $150-160K, it could be a deal breaker.
Even though you are self managing, make sure to account for taxes, insurance, maintenance, cap ex, vacancy, utilities (if not the units then possible common areas) and landscaping.
Keep us posted.
I think it looks like a good one to pursue. About 21.5k/unit for 500 rent, all utilities tenant paid, reasonable taxes...
One issue to explore is what deferred maintenance there is (other than the roof). What age is the building? is it brick? painted wood? Older painted buildings are more expensive to maintain
This property passes the 2% rule nicely. Now it's time to look at the numbers in depth.
I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.
Sewer and Water
Cap Ex and Ops
Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)
Vacancy- as a %. (8% represents 1 vacant month/unit/year)
What's the age of the property? If it's an older building and hasn't been properly rehabbed then you will need to account for either a higher amount of initial Capex or continued maintenance and capex which could zero out the cash flow. On paper the deal looks great however there are plenty of deals priced at 20k/door that don't account for the 10-20k/door needed in rehab to properly get the building in good operating condition. Your city/county could also have a different set of building codes for buildings above 4+ units.
Also how is the location? If it's truly a solid C area with a good rental market then you might have room to do a substantial rehab. Depending on the current HVAC you could also separate utilities.
If you don't already have a good relationship with a local bank then start connecting with as many as you can. Talk to the commercial brokers in this space. They will know which banks are doing deals. Ideally you could get the rehab costs wrapped in the loan. Plan for 25% down (after repair value) plus reserves.
Either way I first spend my time figuring out the true condition of the building and verifying the location quality. Good luck!
I'll get all the info on the water, insurance, etc. the house was built in 1880 and not sure when the last update was, I will collect more info and get back to you guys. Thanks for everything so far!
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