Triplex Unit - Deal Analysis

11 Replies

Hi Everyone, 

Looking for insight on this deal.. It seems good to me so before I jump in I would really appreciate if there is anything missing from my analysis. The property is located in Western MA

Deal

Offer Price: $130,000 + closing costs

Down payment: $32,500 (25%)

Repairs: $15K

Cashflow: $2500 per month

Expenses:

Principal + Interest: ~500 (98,500 @ 4.75%)

Taxes: $220.00

Insurance: $100.00

Electricity: $30

Water/Sewer:  don't know yet Approx $100 per month

Vacancy (10%): $250

Property Manager: $200.00

Monthly Maintenance allowance (10%) = $250

Cash Flow: $950

Yearly ROI: 24%

I assume that "cash flow $2500" is the rent. The numbers seem very good overall. I can't find anything close in my area. Could be even better if you can offload the utilities to the tenants.

$30 a month for electric... on a triplex?  Are you just paying for a common area?  No gas payment?  How much is snow removal and grass cutting going to cost you?  Who pays for the trash?  Do you have an actual quote on insurance at that rate (if so, I may need the name of your agent!)

Frankly, it still sounds like a solid deal (make darn sure you double check those rent rates to ensure they are maintainable).  Even if expenses are a touch low, you'll be looking at a solid 10+% return... if you can do a cash out refinance you'd do even better.

Is the cashflow taking all "income losses" such as vacancy and non-pay into account?

@Nathan Emmert the electric bill is only for the common area and the property manager will do the snow and grass cutting. I don't have an official quote on the insurance yet, but based on my research  $1200 annually seems to be average. I didn't account for the trash fee so I will have to add that. The tenants pay for all the utilities except the water and sewer. 

There are 3 units (2 3 bedrooms and 1 two bedroom) and the rents are in line with what others charge in this area. I didn't quite follow what you mean by "cash out refinance"? The property values don't appreciate so much in my area. 

@Steve OlafsonI did add 10% or $250 per month for vacancy. 

@Scott Weaner  This is an average neighborhood so the prices are low. 

Originally posted by @Aniket Thakur :

@Nathan Emmert the electric bill is only for the common area and the property manager will do the snow and grass cutting. I don't have an official quote on the insurance yet, but based on my research  $1200 annually seems to be average. I didn't account for the trash fee so I will have to add that. The tenants pay for all the utilities except the water and sewer. 

There are 3 units (2 3 bedrooms and 1 two bedroom) and the rents are in line with what others charge in this area. I didn't quite follow what you mean by "cash out refinance"? The property values don't appreciate so much in my area. 

@Steve OlafsonI did add 10% or $250 per month for vacancy. 

@Scott Weaner  This is an average neighborhood so the prices are low. 

Putting $15k into it won't add more than $15k of value?  You're not buying below appraised value?  If you don't answer yes to both of those questions you're doing something wrong.  You should be buying instant equity and increasing that equity with the repairs.  If you can find a bank that will let you tap some of that equity back out you can free some cash back up.

@Nathan Emmert  The 15K is for replacing the roof. I am not sure if I will be able to tap into the equity right away plus the seller will discount the price to account for the roof replacement. 

Some additional information I received in the last couple of days: The first unit is rented @$850 not $900 as orginally stated in the listing

Taxes: @$225 per month

Cleaning snow removal $85 per motnth

Trash: $25

Water/Sewer: $150

Common electricity :$10

So if I re do the numbers it comes to $635 or about 16% ROI per year

 Not sure if it is still a good deal, but it does bring in $200 per door

Well... I think you're getting closer.

Have you received the rent rolls (payments and timing of payments) as well as copies of the leases?  Are you comfortable with the rents, especially now that one has been corrected?

The units are separately metered for both electric and gas?

You gave a number for snow removal... is cutting the grass the same?

Have you checked to see what repairs they've made in the past 2 years?  If they haven't been spending money you can count on a bunch of deferred maintenance.

One of the big killers is getting units rent ready.  You anticipate some vacancy but you haven't built in a cost to refresh the unit.  Your 10% maintenance would cover it, but wouldn't leave any other funds.

Generally speaking you're in the 2% range for rents (assuming the values are real) which is a solid deal. If you found this sitting on the MLS there's probably something wrong. I would try to get the owner to give you the cash back at closing to upgrade the roof (versus discounting the sale price). It'll require a higher appraisal but it essentially allows you to finance the roof at 75% and helps minimize your cash investment.

@Nathan Emmert   I have requested rent rolls, maintenance records and expense reports for the last two years. I have gotten the list of repairs made by the owner, plus I went and looked at the property myself. It is in decent shape. Once I see the rent rolls, I will be able to get an idea on the rent payment timeliness.

All the units have separate meters for the utilities and the snow/grass removal is done by one of the long term tenants (3 + years). Plus the common lights are on their meter. So the rent is lower compared to others ($850) plus the current owner pays them $1000 for property maintenance and common lights bill.  I am going to request the lease documents to make sure everything is in writing

The house has been sitting on the market for over 4 months so it is a concern. There were a couple of price drops. The listing agent stated that the property was initially marketed for owner occupancy with the higher price.  It is listed at retail, The owner has had the house over 7 years and is kind of tired travelling 100+ miles to this unit.

Thanks for your input so far

@Aniket Thakur  is your offer only $15k less than the listing price based on the cost to replace the roof?  Since the current owner is absentee and 'tired' of the property, you should be able to negotiate a better price than only the roof.  He seems to be in a hurry to offload the property with that many price drops in 4 months.  Try offering 15-20% less than asking price.  This will get you into the game with 15-20% instant equity as @Nathan Emmert  was discussing.

Also, are you working directly with the Seller's agent?  They won't necessarily be working in your best interest.  If you can, try to find a buyers agent to work FOR YOU, not the seller.  The seller generally pays the commission, so in this case they would pay 3% to their agent and 3% to your Buyer's agent.  It's a win-win for both of you.

Don't forget capex (also 10% like maintenance)

You will need this for roof, furnace, water heater, ac unit, windows etc.

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