HELP! Need your help analyzing my first multifamily deal - 2 Triplexes

12 Replies

Hi everyone. I have the option to purchase 2 different triplexes and I need help analyzing the deals - getting opinions on the best way to structure the deals and also opinions on which seems to be a better deal since I may only be able to purchase one. If your opinion is that neither is a good deal, please share that too. The units are only about a 1/4 mile from each other so there is no advantage to either for location. 

Triplex #1

2800 sq/ft. building on 1 acre of land

1st & 2nd floor - 2/1. 3rd floor - 1/1 - all currently occupied

Current Total Rent: $2,500

Purchase cost: $180,000+

The property is in good condition but does need a rood and some exterior maintenance - about $10,000 total. The lot can't be subdivided and the original building remain a triplex. I have already spoken with the county and I could subdivide and into 3 lots (1 original and 2 new) but the property would have to be turned back to a single family house, or can remain a triplex and not be subdivided. 

The original deal was structured like this: purchase price $225,000, $100,000 due to seller at closing and $125,000 seller financed over 10 years at 4%. I was going to subdivide the lot and sell off the 2 new lots for $50,000 each too recover my $100,000 down and then keep the triplex and pay it off in 10 years. The county put an end to that deal yesterday. so after speaking with the seller, he said make him a new offer and the only thing I know for certain is that he said he will now take $50,000 down now and finance the rest (that number depends on what I offer).

I was thinking about offering $180,000 - $50,000 and $130,000 seller financed at 3.5% for 10 years, amortized over 20 years.  This would make monthly debt service $753.95/mn with a balloon of $76,997.87 due at the end of the 10 years. Perhaps at that time I convert it back to a single, subdivide and sell everything, or just sell the triplex.

Triplex #2

3,900 sq ft building on a relatively small lot but quiet dead end street. 

All 3 floors are 2/1 but the 3rd floor could have access to a 4th floor that had 2 more bedrooms and 1 full bath but current owner uses this for storage and current tenant can't access. 

1 floor empty, 2nd and 3rd rented

Current Total Rents: $2,400 ($800 per floor)

Purchase cost: $90,000

This property has great potential but needs extensive rehab. It was inherited by  the current owner 30 years ago and they have reinvested almost nothing back in. Interior and exterior needs an estimated $170k-$200k (roof, siding, windows, 3 porches front & rear replaced, new septic system, HVAC, plumbing and 3 interior renos).  If this work was all completed, the total rents could probably be increased to $3,600 a month or more as there is also a first floor studio apartment (an addition on the back) that is currently used by the owner as storage + the 4th floor could be added to the 3rd floor apt. The building is listed by the county as a triplex so it would need to pass a hearing to add the extra studio as rentable space, but the potential is there. 

The owner wants $10,000 down and will finance the remaining $80,000 at 3% over 7 years. I would have to find a bank or private lender to come up with the renovation money though.

#2 is a more desirable building on a quiet street with more rent potential. I don't like the fact it is on septic vs #1 on public sewer. #2 requires less renovations and has more options on the exit strategy. 

So what are your thoughts? #1?#2? or neither?

@Matt Fish , your second last sentence starts "#2 requires less renovations...", but you meant to say "#2 requires (a lot) MORE renovations", didn't you? If its "interior and exterior needs an estimated $170k-$200k (roof, siding, windows, 3 porches front & rear replaced, new septic system, HVAC, plumbing and 3 interior renos)", I'm curious as to how it still manages to generate $2,400 rent per month?!

Given that the County is already off-side regarding sensibly proposed development for #1, and its much lower rent-return ratio, I recommend focusing on #2. Perhaps the "needed" repairs can done for a lot less than $170k? My 2c. All the best...

Now I know where multi-family units are somewhat affordable... I'd say stick with #1 and get an attorney involved (if you haven't already) to see if there isn't some way to split the lot of land, but I'm a newbie. 

@Brent Coombs  You are right, I meant to say that #2 requires far more renovation. 

As much as I would like the renovations to cost less than $170,000, I am not optimistic it will be possible. It is a very large project and needs just about everything. Of course I wouldn't have to do everything all at once, but it might be easier to get it done while no tenants are in there. While it seems you think #2 is a better deal, do you think it is a 'good' deal?

@Tanner Morrill I wouldn't say multi-families in general are more affordable here in the northeast than the midwest. These sellers just happen to be motivated to sell so the prices are a bit lower than if they threw them out on the MLS. I think you could find good deals anywhere with enough time and effort. The question I keep pondering, are either of these good deals?

How are you finding the market in Utah?

stick with property #1 less work involved and with your attorney review the legal docs, that'll give you time to ensure you're creating improvements as oppose to add ons that could be a challenge. 

Just tossing this out there...

If the area is very desireable and not surrounded by rentals, could you "flip" the triplex into a single family, subdivide into three lots and either sell the land or build two more single families on it? And if you did, would the going rate for single family homes in the area make it worth your while? 

I don't know if you are only wanting multifamily, but if the area is good, I'd be considering that. Multi families sell based on possible income, and if in a desireable area, will sell for less than a single family (if duplex or even triplex). I'm considering buying duplexes in very desireable neighborhoods and converting them to single families because the market is doing well and the duplexes sell for less than half of what the single families sell for. 

-Mary 

@Account Closed  So glad you brought this up. I just spoke to another local investor about this exact same scenario. This was his suggestion too and I really like it. The properties could probably each sell for about $200k (based on a comp right across the street that sold for $199k, new construction, smaller house one a smaller lot).

The only problem is that the units are rented for the next 12 months. So any cash I put down would be tied up longer than a normal flip

@MATT FISH I'm very new, but so far the Utah Market seems tough to crack. The condos I was looking at for around $110k on the MLS would need to sell for half that to cash flow, based on my estimated rent and expenses. Nothing in the metro area generally goes for less than $200k, with SOME townhomes and condos the exception. I need to find some birddogs. =)

You will have a very difficult time finding second position rehab money for #2.

If you can't partner or have some very friendly private money, I think you need to pass unless you can do it over years from cash-flow and personal funds.

Originally posted by @Matt Fish :

@Brent Coombs  You are right, I meant to say that #2 requires far more renovation. 

As much as I would like the renovations to cost less than $170,000, I am not optimistic it will be possible. It is a very large project and needs just about everything. Of course I wouldn't have to do everything all at once, but it might be easier to get it done while no tenants are in there. While it seems you think #2 is a better deal, do you think it is a 'good' deal?

This thread has become like "pick a box", where every possible option seems to have been recommended - and for good reasons! Please let us know how you get on. Spin the dial... Will I, Won't I, #1, #2, Neither, Both,...

@William Hochstedler I agree with the 2nd position rehab loan. I would have to give a bank or lender first position and have the seller be in second position and perhaps provide them with additional collateral. 

@Matt Fish

If the seller will subordinate, you've got a lot of options.  Sounds like my kind of property ;).

Good luck.

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