5 Single family home package and commercial finance

2 Replies

Hi all,

I am interested in a deal where there are 5 single family homes as a package.  Fully rented.  All are in good condition, rehabbed (fully gutted) about 3-5 years ago.

This would be my first deal getting into rental investing in US.  

Purchase price: 270k

Currently rented for: 3500/month

Expenses: 600/month (taxes, insurance, utilities < water for one unit)

Prop Mgt: 300/month 

Maintainance: 120/month

CapEx/Rainy day: 230/month

Vacancy: 175/ month (5%)

Debt service:  1090/ month (@5% interest)

Total:  2500 (approx)

Cash Flow:  1000/month (200 per door)

Downpayment: 70k (25%)

Cash on Cash: 17%

What are the downsides of such a package against a multifamily unit?

Finance:

I will have to go with a commercial loan.  Since there is a limit of 4 total houses in getting conventional loan, would this commercial loan of 5 units close doors on me for getting conventional loans for my future acquisitions?

Hey Apurv,

I'm not qualified to answer your question about the financing but your maintenence and CapEx seem very thin. I know they were just gutted but the point of having that line item is to protect you 5 years from now when things do start to wear out. If you're not setting aside that CapEx money youre going to be hurting when three of the air conditioners go out at the same time.

Originally posted by @Joe Kling :

Hey Apurv,

I'm not qualified to answer your question about the financing but your maintenence and CapEx seem very thin. I know they were just gutted but the point of having that line item is to protect you 5 years from now when things do start to wear out. If you're not setting aside that CapEx money youre going to be hurting when three of the air conditioners go out at the same time.

Thanks!

Currently I have maintainance at 0.5% annually and CapEx at 1% annually, total 1.5% kept aside (of the property value). I arrived at this numbers from the history of the property (about 1000$ average yearly maintainance for past few years) and secondly form some research.

But you are right, there is no good number, maximum I can bump up is to 2%.  After that the numbers dont make much sense : Roughly 500/month.  Then cash on cash becomes 14% with 170$ per door.

  

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