Analysis on mulit family how to get it to cash flow

7 Replies

Hi-

I'm looking for duplexes, starting small...but of course multi-multi is out there in mass. However, +5 units do come with more things that I need to learn about before just jumping in.

What I'm running across are for-sale owned by investors that have several duplexes.

To hone my skills, I am doing analysis from what I learned about deal analysis, thanks BP community, to see what I come up with. And who knows, it might be a better deal instead of piece-mealing trying to buy 1 or 2 duplexes at a time.

This listing is from an investor (selling through a realtor) who owns 4 duplexes all on the same street. Built 1978 last sold 1996.

I pulled up the addresses using maps.google.com to see the area.

From the pictures, and I know it’s not the same but it’s a start, it looks decent, it's on a cul-de-sac.

I also pulled up the property records (appraisers and tax site) and found the investor purchased all the units at the same time in 1996 (built in 1978) for the same price each $40k.

I didn't bother with looking to see if the investor still has a mortgage on the units, since that $ amount and this amount of time it's likely to be paid for. And according to Trulia.com, the area is all green (good) as it relates to their crime stats.

These are all 2/2 total 1708sq ft (854 @).

Question: Can anyone speak to the history showing on-off market so erratically over the months/years? Does anyone really look at the listing history?

Also, I got this just before it was removed from Zillow.com so now it just looks like 6/1/2015 as a “new” listing.

  • 06/01/2015 Relisted $565,000
  • 07/02/2012 Relisted $565,000
  • 06/29/2012 Delisted
  • 01/03/2012 Relisted $565,000
  • 01/01/2012 Delisted
  • 08/02/2011 Relisted $565,000
  • 07/31/2011 Delisted
  • 07/08/2011 Relisted $565,000
  • 06/30/2011 Delisted
  • 06/28/2011 Price Changed $565,000
  • 12/01/2010 Relisted $615,000
  • 11/30/2010 Delisted
  • 10/11/2010 Relisted $615,000
  • 10/08/2010 Delisted
  • 09/09/2010 Relisted $615,000
  • 09/08/2010 Delisted
  • 06/27/2010 Price Changed $615,000
  • 04/09/2009 Listed $620,000

Question: Do I look at the duplexes as "individual" cash flow, COC, and ROI for the outcome or do I look at all of them for the potential $$$?

Question: How do I do vacancy rate on individual duplexes? I am thinking I need to do 10% on each one?

Current rents ($27300):

  • Unit 2 Rent: 575 (6900)
  • Unit 3 Rent: 550 (6600)
  • Unit 4 Rent: 575 (6900)
  • Unit 1 Rent: 575 (6900)

I know this is just information as it was provided by the investor/realtor as part of the ad and due diligence would be to see what other rents in the area go for and to get an actual "rent roll" from the seller.

Tax roll:

$1,939 for each unit according to the tax assessor site…but….I also see “unpaid” so I’m wondering what’s going on with these units.

To the analysis (without 50%):

  • 10% PM
  • 10% vacancy
  • 5% cap ex
  • $2000 taxes each unit (4 of them) (i don't know how to determine this since their taxes will differ from what the new person coming in will have to pay)
  • $1000 insurance each unit (rough estimate of $1k per yr per unit)
  • 10% maintenance
  • 20% down with
  • 4.8% rate on a 30yr. (this was based on a SFR and I couldn't get in touch with the bank to find out what multi rates were).
  1. Gross: $2,275
  2. Vacancy: $228
  3. GOI: $2,047
  4. Expenses: $1,568
  5. NOI $479
  6. PI:$2,393
  7. Cash Flow: -$1,914
  8. Cap Rate: 1%
  9. COC:-17.7%
  10. ROI:-30.7%
  11. Rent-2-Value: 0.4%

To the analysis (with 50%):

  • 10% PM
  • 10% vacancy
  • 5% cap ex
  • 10% maintenance
  • 20% down
  • 4.8% rate on a 30yr. (this was based on a SFR and I couldn't get in touch with the bank to find out what multi rates were).
  1. Gross: $2,275
  2. Vacancy: $228
  3. GOI: $2,047
  4. Expenses: $1,138
  5. NOI $909
  6. PI:$2,393
  7. Cash Flow: -$1,484
  8. Cap Rate: 1.9%
  9. COC:-13.7%
  10. ROI:-26.8%
  11. Rent-2-Value: 0.4%

This just seems horrible at $565k…

Thanks everyone….

@Daria B.

If your goal/strategy is Buy/Hold you need to move past this seller.   Numbers you present are way off ... Negative cash flow.

You state it is 4 duplexes, but, show only 4 unit rent rates?  Even if you double the rent per unit listed it still is not at 1% rule.

Yes I look at listing history, he has been trying to unload these properties and can't get the price he wants. Hince, FSBO and not agent. Again, what are comps?

Buy/Hold investors are looking for Cash Flow! It applies to individual duplexes or all together.  If it doesn't move on.

On vacancy rate assume 8 to 10% unless rent rolls are provided that show otherwise.

Bottom line for me if it doesn't meet my required minimums on initial look I move on.

Hope this helps.

John

It is horrible at $565, and that's why he keeps listing it.

Personally speaking, I do not know how multi units actually appreciate in value, if the rent does not appreciate at the same rate, which in many cases it doesn't.

Multi units are investment tools, and are only as valuable as the income that they generate. Now I know they sit on a bit of land that appreciates itself, but unless the area changed significantly, then I don't know how some of these prices are derived.

btw, it's not the worst I've seen, there is a piece of land near us that had 14 "units" for sale for $50k. Supposedly you could generate $90k in rent a year......

But the building were utterly delapitaded, and not fit for any sort of rental without significant cash.

It stayed on the market for two years until sold for $25k to an investor somewhere. That investor has cleared a bit of the land, painted three buildings red, removed a couple of trailers by destroying them on site (if there is still rubbish there in September I'm reporting him to code control), and now lists the property at.....drum roll.....$450k.

This post has been removed.

Yes, @John Leavelle it is to buy-n-hold and this is not the one for sure. I couldn't even find the other duplex so the Ad didn't match the appraisers office. Not sure what's going on but it doesn't matter now.

News Alert-I called the tax office and found out the taxes have not been paid in over 2 years and there are tax certificates on it.

I may have to look at *taxes* as my line of sight to do the elimination round early.

LOL Yeah @Brent Coombs is that hilarious or what. When I looked at the initial purchase, even over looking the fact that these are not appreciated at half what it was purchases as, I thought this person has "got" to be on drugs. @James DeRoest it's purely for cash flow for me and if I can get a duplex or quad low enough, I might be able to sell for a small enough appreciative :) value. I have other properties that are my appreciation holds that do cash flow well. 

Lesson learned, look at the taxes to make sure they are not delinquent. All I did was look to see what the number was for the last year and moved on without considering actually looking at the bill. :/

And get this, not long after I found those duplexes, another popped up and they want $525 all purchased for the same amount in 2005. Honestly, what's going on here? They pay that price and 10 years later they want to sell at the same price?

I don't consider appreciation to be a good investment tool. Appreciation is the bonus payment at the end. You have zero control over positive appreciation (but plenty for negative if you get the wrong tenants), whereas I have control over the rents, repairs, etc of the property which is ongoing cash flow.

Appreciation is at the whims of the market. Market goes up, great, market goes down, not so great.

And what exactly is the appreciation on a multi unit? There really isn't much you can do with a multi unit to add value, you can most certainly restore value which is what we're doing with one of ours, but adding to the value is really outside our control.

Delinquent taxes btw is not a problem, it just shows the landlord has no money and they are desperate to unload this property before the county tax certificate foreclosure gets them. I know plenty of slumlords way behind on taxes at the moment. 

Which reminds me, got a score to settle with some old bag, need to buy her certificate and get her house foreclosed for her. Teach her not to remove her tree off my house.