Potential first deal

7 Replies

Hello all, and thank you in advance for any responses.  I'm looking at my potential first deal, and want to run thenumbers by everyone to see if it's even worth pursuing.  The property is a triplex, each unit is 2/1, and approximately 850sqft.  Currently, two of the units are occupied with one being recently vacated.  

I can negotiate the price down to about $150,000 to $160,000

Current rents are $600/unit, but based on other properties in the area, I think some simple updates could get rents in the $700 area.

I am told there is no major rehab needed, but would obviously have a contractor look at it.

I would put 25% down, or $40,000 and finance 20%.  Principal and interest on a 30yr fixed are $594

Taxes and insurance are ~$2000/yr.

I am estimating having to spend $15,000 on updates to get the property up to snuff.

Any thoughts at first glance, or other information I should look into?  Thanks again!

Use the Rental Analysis tool in the top, blue menu bar, under "Analyze".

You're missing some important information, such as ARV. You've told us what you can negotiate the price down to, but you haven't told us what the property is worth, once you put the $15k into it.

Have you validated that the area will support the $700/door rent you want to project?

Thanks for getting back to me, and good point about the ARV - didn't think about that as I plan to hold it for a long while. Based on comps in the area, ARV is roughly $180. Yes, the $700 rents are justified based on other properties around the area.

Are the $700 rents justified based on the condition? 

Quick crude calculation

2100 /mo = $25,200/yr

With 50% expenses that = 12,600 NOI

@$165K after repairs that is about a 7.6% cap rate.

That wouldn't excite me in the least.

Definitely check the major items (i.e. roof, electrical, plumbing, air conditioning, etc.) as these can be big ticket items. When estimating fix-up costs, it's best to get these items checked by experts so you have a better idea of what you're getting into. Hope that helps! 

Really appreciate the feedback from everyone.  Need to do some more homework.  Thanks!

That deal looks good to me, assuming all your estimates are correct of course.  I estimate $100 CF per door assuming 100% financing, it doesn't meet the 2% rule but as many are finding these days in many markets that's hard to find. 

like the fact that the cap rate is 7.6% based on Ned's calculation and your cost of money is 4.3%.  You are coming out with $152 per door.  You are having to put up 33% of the money to get that cash.

I don't know the cap rates in your area but would rate this as an ok deal. Knowing the ARV would give you the market cap rate. I don't want to pay extra for the $700 per month since you are creating it, not the seller.

Good Luck.

Bill

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