Getting Analysis Paralysis on this multifamily deal...

[Brandon Miller]

The deal is that there are 4 units (2br each), the place is fully rented and needs zero work to keep rented.  It will need a little plaster and paint work when/if the tenants turn over.  The place brings a monthly rent total of $1,950 and the asking price is $109,500.  The property has a 2 unit townhouse then has 2 individual 2 bed room houses all deeded as a single lot.

When I run it through the BP Rental Calculator it's telling me that if I can get the place for $85k, if I assume 8% vacancy, 7.5%CapX, 10% Maint/Repair, and a $185/mo insurance bill, it's telling me I'll still net less than $55/unit monthly.  How can this deal still be not so good?  Is it because I'm borrowing 100% purchase price?  I can't imagine this is actually a bad deal.

Although I know I should't pay for assumed rent increases, but I'm pretty sure they're about $75-$100 light.

Would you do this deal?  If so, what am I not focusing on that I should be?

Brandon

[Victor Menasce]

I think the biggest problem is that the rents are low. Any time you have rents below $1000, the maintenance costs will eventually result in negative cashflow. Depending on the age of the property, you may need to reserve large amounts for maintenance. Materials and labor cost the same, regardless of how much rent you charge. An air conditioner costs $3500 to replace whether you charge $500 a month in rent or $2000 rent. A roof replacement will cost, say, $7000. Even if you have 5 years left on the roof, you need to reserve $116 per month for the next 5 years to save up the $7000 to replace the roof. I hope you're getting the idea. When you add these reserves into your budget, cashflow goes negative.

I would not buy this property for that reason. I own many units, and my best performing units are the highest value ones with the highest rents.

The voice of experience. Hope that helps.