Talk me into or out of this deal

Realtor · OH · Member since 2026 · 122 posts · 77 votes

6mo

I am looking at a triplex listed for $230,000. I offered $215,000 and it was accepted. In my underwriting, I calculated $15,000-20,000 for improvements. It is looking like it is going to be closer to $40,000-50,000+. It is located in a C neighborhood. I am not working with a realtor so it is tough to know what the ARV will be. However, I definitely don't think this would be a $265,000 home ARV. This is not a neighborhood that will appreciate much. The best rates I am finding at my local banks are 25% down, 6.49% interest with 30 year fixed. (We could do less if we wanted a 5 yr arm). I think the units will still cash flow anywhere from $500-900/month (Very conservative to best case scenario). However, we will have to put over $100,000 into the property.

We have the capital but should we really be putting this much money into a property with very little appreciation potential? Even with my utmost conservative numbers, I am getting an IRR of 7%. If things go well, I think it would be an IRR of 18% possibly higher.

This would be my second rental property. It was just put back on the market a couple of weeks ago but they have tried to sell it a few times before. So, I'm second guessing myself. I feel like this is a good rate of return but why aren't other investors jumping on it? We have the official inspection on Monday but I have already had some companies come in to look at the sewer and HVAC.

The "upgrades" they did were done very poorly and some things need to be completely redone. The windows are terrible and at least 8 need to be replaced along with adding an egress window to make the 1 bd an official 1 bd. I knew it didn't have AC so that was part of my original budget. Since it is forced air, we got a quote for $7,000 to add central air. Windows themselves are going to be at least $20,000 and more if we do them all. Then all the cosmetic upgrades to at least get it rented. I definitely want a value add but not sure this is a true value add.

In a C neighborhood in Bismarck, the danger isn't just the renovation cost—it’s the "Value Ceiling." If your all-in basis ($215k purchase + $50k rehab = $265k) exceeds the ARV, you are essentially "buying" a job rather than an investment, as you won't be able to refinance your capital back out. Since you are not using a Realtor, you must verify the Maximum Permissible Value for triplexes in that specific pocket; in C-class areas, appraisal caps are notoriously rigid regardless of how many "luxury" upgrades you install. If the property has failed to sell multiple times, the market is signaling that the price-to-rehab ratio is off, and a 7% conservative IRR is far too thin for the risk of a "full gut" on a 100-year-old North Dakota structure. I would use the inspection on Monday as leverage to renegotiate the price down by the $30k budget gap or walk away to preserve your $100k for a deal with a higher "forced appreciation" margin. I hope that helps.

2 Reply

Lee Gierszewski

Investor · Bismarck, ND · Member since 2017 · 110 posts · 50 votes

6mo

1121 12th St? If so, I’ve been in this property for one of my investors. I have quite a few rentals in Bismarck and I also advised him to let this one be. If ya have any questions, feel free to reach out to me.

0 Reply

Edwin Yaghoobian

Member since 2026 · 9 posts · 5 votes

6mo

The rehab number doubling before you even close is the thing I'd focus on most. That gap between $20k and $50k+ isn't just a cost issue; it changes your entire return profile and your ability to refinance if you ever want to pull capital out.

The other thing worth nailing down before Monday is your actual rent comps. Without a realtor you may not have good visibility into what a triplex in that specific pocket of Bismarck is actually renting for right now. Your cash flow estimate has a pretty wide range and that range matters a lot when you have over $100k going in.

Use the inspection as leverage. If the sewer and HVAC come back with issues, you have a strong case to renegotiate the price down to account for the real rehab number, not the original estimate. That's your best move right now, not walking away but not closing at $215k with a $50k rehab either.

1 Reply

Matthew Bernal

Investor · Austin, TX · Member since 2021 · 497 posts · 127 votes

6mo

You're asking the right question and your instincts are solid. The deal math here is a cash flow story not an appreciation story, which means you have to underwrite it purely on what the rent produces.

At $500-$900/month net on $100K deployed you're looking at 6-10% cash-on-cash. That's not a bad return but C neighborhoods carry real risk that doesn't show up in the spreadsheet higher vacancy, more tenant turnover, more maintenance calls, and slower lease-ups after rehab. Those factors can quietly compress that $500-$900 range toward the bottom end.

The reason other investors haven't jumped isn't necessarily that the deal is bad it's that the rehab scope is heavier than it appeared and C properties require active management most investors don't want to deal with. If you're willing to manage it well and your $40K-$50K rehab estimate is solid after Monday's inspection, the deal can work.

One thing worth considering — at 25% down with a local bank you're tying up a lot of capital. A DSCR loan on this triplex could potentially require less out of pocket and give you more flexibility to keep capital available for the next deal.

Happy to run the financing numbers alongside your deal analysis before Monday.

What are the current rents on the occupied units right now?

1 Reply

Brenda Reems
OP
Member since 2025 · 33 posts · 8 votes
6mo
Quote from @Matthew Bernal:

You're asking the right question and your instincts are solid. The deal math here is a cash flow story not an appreciation story, which means you have to underwrite it purely on what the rent produces.

At $500-$900/month net on $100K deployed you're looking at 6-10% cash-on-cash. That's not a bad return but C neighborhoods carry real risk that doesn't show up in the spreadsheet higher vacancy, more tenant turnover, more maintenance calls, and slower lease-ups after rehab. Those factors can quietly compress that $500-$900 range toward the bottom end.

The reason other investors haven't jumped isn't necessarily that the deal is bad it's that the rehab scope is heavier than it appeared and C properties require active management most investors don't want to deal with. If you're willing to manage it well and your $40K-$50K rehab estimate is solid after Monday's inspection, the deal can work.

One thing worth considering — at 25% down with a local bank you're tying up a lot of capital. A DSCR loan on this triplex could potentially require less out of pocket and give you more flexibility to keep capital available for the next deal.

Happy to run the financing numbers alongside your deal analysis before Monday.

What are the current rents on the occupied units right now?

Currently, only 1 of the 3 units is occupied. The triplex consists of an efficiency apartment which is currently being rented at $750/month all utilities included. The 1 bedroom would be furnished. Depending on how indepth we go with the rehab, it could be rented for $1,100-1,400/ month. It does not have an egress window in the bedroom and the other window is leaking. So, both of these windows should/need to be replaced. It was being rented at $600/mo all utilities included as a LTR.
The upper unit is also vacant. I was told this unit was being rented for $1,400/mo all utilities included. Its a 2bd 1ba plus a full loft upstairs. So, it could be marketed as a 3bd 1ba but the bathroom is really small, layout is weird and a lot of the rehab that has been done to it looks nice from the surface but actually shoddy. A lot of the windows don't open. We could get by without replacing these right now. I would like to add some kitchen cabinets, and appliances need to be replaced. I would be happy if I can get $1,400 for this unit.
0 Reply
Matthew Bernal
Investor · Austin, TX · Member since 2021 · 497 posts · 127 votes
5mo
Quote from @Brenda Reems:

Quote from @Matthew Bernal:

You're asking the right question and your instincts are solid. The deal math here is a cash flow story not an appreciation story, which means you have to underwrite it purely on what the rent produces.

At $500-$900/month net on $100K deployed you're looking at 6-10% cash-on-cash. That's not a bad return but C neighborhoods carry real risk that doesn't show up in the spreadsheet higher vacancy, more tenant turnover, more maintenance calls, and slower lease-ups after rehab. Those factors can quietly compress that $500-$900 range toward the bottom end.

The reason other investors haven't jumped isn't necessarily that the deal is bad it's that the rehab scope is heavier than it appeared and C properties require active management most investors don't want to deal with. If you're willing to manage it well and your $40K-$50K rehab estimate is solid after Monday's inspection, the deal can work.

One thing worth considering — at 25% down with a local bank you're tying up a lot of capital. A DSCR loan on this triplex could potentially require less out of pocket and give you more flexibility to keep capital available for the next deal.

Happy to run the financing numbers alongside your deal analysis before Monday.

What are the current rents on the occupied units right now?

Currently, only 1 of the 3 units is occupied. The triplex consists of an efficiency apartment which is currently being rented at $750/month all utilities included. The 1 bedroom would be furnished. Depending on how indepth we go with the rehab, it could be rented for $1,100-1,400/ month. It does not have an egress window in the bedroom and the other window is leaking. So, both of these windows should/need to be replaced. It was being rented at $600/mo all utilities included as a LTR.
The upper unit is also vacant. I was told this unit was being rented for $1,400/mo all utilities included. Its a 2bd 1ba plus a full loft upstairs. So, it could be marketed as a 3bd 1ba but the bathroom is really small, layout is weird and a lot of the rehab that has been done to it looks nice from the surface but actually shoddy. A lot of the windows don't open. We could get by without replacing these right now. I would like to add some kitchen cabinets, and appliances need to be replaced. I would be happy if I can get $1,400 for this unit.
Hey! Please check you DM.
0 Reply

Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

6mo

Quote from @Brenda Reems:

I am looking at a triplex listed for $230,000. I offered $215,000 and it was accepted. In my underwriting, I calculated $15,000-20,000 for improvements. It is looking like it is going to be closer to $40,000-50,000+. It is located in a C neighborhood. I am not working with a realtor so it is tough to know what the ARV will be. However, I definitely don't think this would be a $265,000 home ARV. This is not a neighborhood that will appreciate much. The best rates I am finding at my local banks are 25% down, 6.49% interest with 30 year fixed. (We could do less if we wanted a 5 yr arm). I think the units will still cash flow anywhere from $500-900/month (Very conservative to best case scenario). However, we will have to put over $100,000 into the property.

We have the capital but should we really be putting this much money into a property with very little appreciation potential? Even with my utmost conservative numbers, I am getting an IRR of 7%. If things go well, I think it would be an IRR of 18% possibly higher.

This would be my second rental property. It was just put back on the market a couple of weeks ago but they have tried to sell it a few times before. So, I'm second guessing myself. I feel like this is a good rate of return but why aren't other investors jumping on it? We have the official inspection on Monday but I have already had some companies come in to look at the sewer and HVAC.

The "upgrades" they did were done very poorly and some things need to be completely redone. The windows are terrible and at least 8 need to be replaced along with adding an egress window to make the 1 bd an official 1 bd. I knew it didn't have AC so that was part of my original budget. Since it is forced air, we got a quote for $7,000 to add central air. Windows themselves are going to be at least $20,000 and more if we do them all. Then all the cosmetic upgrades to at least get it rented. I definitely want a value add but not sure this is a true value add.

You MAY be making a very common newbie mistake - NOT maintaining to the Neighborhood

Often, newer investors rehab a property like they would live in it. They want "pride" of ownership.

Well, how does "pride" => profit?

Of course, it is a challenge figuring out what the Neighborhood expects and where to begin & end a rehab project.

Here's the categories we've created to assist our clients to make better decisions. The list is ranked by priority:

1) Health & Safety - no one wants to hear from a personal injury attorney!

2) Government Required - this covers Section 8 requirements, city inspections and permits.

3) Property Preservation - fix it now for $x, or defer it to later, but understand it may cost 2x or more.

4) Marketing Impact / Tenant Retention - examples below:
- Purple bedroom: does it NEED to be painted? No - but, how long will it take to rent it at what discount?
- Tenant wants blinds replaced to renew lease: yes, they broke them, but it may only cost $300. If the tenant moves out, how much will the owner lose due to RentReady repairs + vacancy losses?

5) Miscellaneous - there's always something that doesn't fit in one of the above. What impact will it have on DOM, type of tenant, renewals, etc.?

Now, let's look at some of the repairs you've mentioned:

AC ($7k): how many of the current competing rentals on the market, offer AC?
What's the rent difference between those that do and don't?
What actual cost does the rent difference justify?

Windows ($20k): again, how do the windows look in the Zillow pics of the competition?
How will the current windows affect the tenants use of their home?
NOTE: forget about the impact on their utility bills! Class C tenants don't really think ahead.
--- Go find a listed competitor that's promoting utility efficiency and see how many days it's been on the market!

Sewer (?): Definitely get it camera'd and make sure you get a copy of the video, download & save.
Does it HAVE to be replaced or can you just do annual maintenance snake?
--- Let's say it costs $12k to replace, but only $200 for annual snake. How many years for a payback? Even if you have to snake it twice/year?

HVAC (?): probably the highest priority of what you've mentioned.
Have seen too many newbies replace furnaces that were working fine, just because they were older.
Who really cares how old it is?

The only way to make money with Class C & D properties, besides not overpaying for them, is to squeeze every bit of life out of things before replacing them. This doesn't imply being a slumlord. If you take care of Categories # 1 & 2 above, you won't be one.

DM me if you'd like to chat deeper about this.

[email protected]248-209-6824

Logical Property Management4.9459 Reviews

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1 Reply

Brenda Reems
OP
Member since 2025 · 33 posts · 8 votes
6mo
Quote from @Drew Sygit:

Quote from @Brenda Reems:

I am looking at a triplex listed for $230,000. I offered $215,000 and it was accepted. In my underwriting, I calculated $15,000-20,000 for improvements. It is looking like it is going to be closer to $40,000-50,000+. It is located in a C neighborhood. I am not working with a realtor so it is tough to know what the ARV will be. However, I definitely don't think this would be a $265,000 home ARV. This is not a neighborhood that will appreciate much. The best rates I am finding at my local banks are 25% down, 6.49% interest with 30 year fixed. (We could do less if we wanted a 5 yr arm). I think the units will still cash flow anywhere from $500-900/month (Very conservative to best case scenario). However, we will have to put over $100,000 into the property.
We have the capital but should we really be putting this much money into a property with very little appreciation potential? Even with my utmost conservative numbers, I am getting an IRR of 7%. If things go well, I think it would be an IRR of 18% possibly higher.
This would be my second rental property. It was just put back on the market a couple of weeks ago but they have tried to sell it a few times before. So, I'm second guessing myself. I feel like this is a good rate of return but why aren't other investors jumping on it? We have the official inspection on Monday but I have already had some companies come in to look at the sewer and HVAC.
The "upgrades" they did were done very poorly and some things need to be completely redone. The windows are terrible and at least 8 need to be replaced along with adding an egress window to make the 1 bd an official 1 bd. I knew it didn't have AC so that was part of my original budget. Since it is forced air, we got a quote for $7,000 to add central air. Windows themselves are going to be at least $20,000 and more if we do them all. Then all the cosmetic upgrades to at least get it rented. I definitely want a value add but not sure this is a true value add.

You MAY be making a very common newbie mistake - NOT maintaining to the Neighborhood
Often, newer investors rehab a property like they would live in it. They want "pride" of ownership.
Well, how does "pride" => profit?
Of course, it is a challenge figuring out what the Neighborhood expects and where to begin & end a rehab project.
Here's the categories we've created to assist our clients to make better decisions. The list is ranked by priority:
1) Health & Safety - no one wants to hear from a personal injury attorney!
2) Government Required - this covers Section 8 requirements, city inspections and permits.
3) Property Preservation - fix it now for $x, or defer it to later, but understand it may cost 2x or more.
4) Marketing Impact / Tenant Retention - examples below:
- Purple bedroom: does it NEED to be painted? No - but, how long will it take to rent it at what discount?
- Tenant wants blinds replaced to renew lease: yes, they broke them, but it may only cost $300. If the tenant moves out, how much will the owner lose due to RentReady repairs + vacancy losses?
5) Miscellaneous - there's always something that doesn't fit in one of the above. What impact will it have on DOM, type of tenant, renewals, etc.?
Now, let's look at some of the repairs you've mentioned:
AC ($7k): how many of the current competing rentals on the market, offer AC?
What's the rent difference between those that do and don't?
What actual cost does the rent difference justify?
Windows ($20k): again, how do the windows look in the Zillow pics of the competition?
How will the current windows affect the tenants use of their home?
NOTE: forget about the impact on their utility bills! Class C tenants don't really think ahead.
--- Go find a listed competitor that's promoting utility efficiency and see how many days it's been on the market!
Sewer (?): Definitely get it camera'd and make sure you get a copy of the video, download & save.
Does it HAVE to be replaced or can you just do annual maintenance snake?
--- Let's say it costs $12k to replace, but only $200 for annual snake. How many years for a payback? Even if you have to snake it twice/year?
HVAC (?): probably the highest priority of what you've mentioned.
Have seen too many newbies replace furnaces that were working fine, just because they were older.
Who really cares how old it is?
The only way to make money with Class C & D properties, besides not overpaying for them, is to squeeze every bit of life out of things before replacing them. This doesn't imply being a slumlord. If you take care of Categories # 1 & 2 above, you won't be one.
DM me if you'd like to chat deeper about this.

HVAC and sewer actually came back good. Furnace was being overworked because the filter hadnt been changed in years, dirty and all the vents in the upper unit were closed. But, once we fixed that, it ran well. We need some sort of AC units in there. Do we NEED central air, maybe not. But, I do think it will add value to the home. The biggest issue is that HVAC is all on 1 control. So, the bottom 2 units can not control their own temp. But, the company would add sensors to all three units and have a lock out. They are pretty confident that it should stay pretty comfortable in the units.
There are safety issues that need to be addressed. Railing on deck is broken, no hand rails going to the loft area, etc.
0 Reply

Brenda Reems

OP

Member since 2025 · 33 posts · 8 votes

5mo

Thank you to everyone that responded to my message. I just wanted to give a follow-up. After the inspection, we went back to the seller to tell them that we were not going to pay the original asking price. The sellers agent said she didn't think the seller would go down any further so we walked away. They already had another back up offer that must have been without contingencies since it went pending right away.

It's hard to know if we did the right thing. But, either way, we win some and we lose some.

Thanks again to everyone that provides knowledge and expertise on my question.

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