This is not a mls property. Here are the numbers.
List price: 60k
Yard Maint: 65
Monthly income from rent: 1300
He is offering me seller financing with 10% down, 7% int, for 10 or 20 yrs.
I'm very interested but have no idea how to value this property. I'd like to buy in to some equity and definitely don't want to pay more than what it's worth.
With the above numbers, I'd still cash flow 316.34 per month. Again, I just don't know what it's worth.
One unit is currently rented, one is "almost" rent ready and the third needs work. I have someone going to look at it today to get a good idea of the make ready repairs needed.
It sold 2 years ago for 60k and I'd estimate that he's put 5k in it.
His estimates for rent are also on the conservative side.
Is the 1300 in rent with all units occupied? How long do you plan on holding on to this property, because if longer than 10-15 years, you will need to bump up the capex reserves quite a bit (more around 250/month)? What is the neighboorhood composition look like? ie surrounded by SFR, or multifamily housing. This can affect your ability to raise rents in the future. A PM isn't likely to be used because it's too costly. With a PM you also need to factor in the fee to lease the property when vacant. This typically adds a few percentage points to the total % you currently have allocated to PM.
1300 is with all 3 units rented. The area is mixed, but mostly single family homes.I plan on holding onto the property long-term unless market conditions change.I would prefer to use a property manager for the first couple years since I don't live close to the property.
This looks like a pretty good deal. Don't focus too much on how much it's worth. You're buying for cash flow not appreciation.
One thing I am not seeing is utilities. Are there 3 electrical meters, and 3 water meters on the property?
Seller financing is great, but see if you can get that interest down. Offer a shorter period of time, maybe even a balloon payment structure to get him to lower the interest. You'll just refinance him out anyway down the road.
Based on your numbers this looks great. However, don't forget that you will need to add cost of leasing (a month rent or similar). They will probably mark up all the cost of maintenance and unit turn costs too.
Also, the fact that you have two units that are not rented now is reason to be extra cautious unless you know that apartments rent fast in this area.
Logan is right, CAPEX seems very low. When were roofs installed, do you have AC/heating systems, what about siding, plumbing and electrical? Is everything in great shape? There are always, always unexpected costs and you want to make sure you have enough funds to cover them.
I do not agree with Devan. The biggest mistake new investors make is that they only focus on cash flow. This is critical yes, but there will come a time when you will have to sell the property too. What if prices have come down? Will you have enough money to cover major CAPEX while you hold the property 10-15 years.
If your deal still looks good go for it!
Owner financing at 7% that is super good. I do not think you can beat that. But your figures are based on 100% rental rate what if the other two units do not rent. You have to consider how to handle this if it will continue that way. I would ask myself how confident you are that you can and will rent the other units out. There is a reason the owner if offering owner finance at only 7%. As long as the other two units are not rented then you will be dealing with a negative cash flow. How long can you keep that up? I would also caution you that you have to make sure you have enough cash on hand to handle maintenance issues at all times.
Just too many people get into real estate deal because they are easy to get into but they do no make sure they can manage things well so I would caution you despite the fact that your figures look good. When you start to have problems nothing anyone will say will help you. You will have to deal with your situation all alone.
This will be my first multifamily. I need a few exit strategies so I want to ensure I'm not overpaying, even if it cash flows well. I will take a closer look at pm fee's.
One of my concerns is whether the units are on separate meters. I will know tomorrow. Is this expensive?
Property was a bust, as well as the owner. He no-showed on my wife when she was already at the property. Then asked the tenants to show the property, which turned out like an episode of Jerry Springer (the husband and wife tenants were arguing).
Property was in very poor condition and is overpriced.
On to the next.
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