Either, Neither, or Both?

4 Replies

Hello BP,

First time poster, so please let me know how to ask for advice better!

I'm looking to add a property and have narrowed my options in Charleston SC (medium priced market) to two different properties.  I have 2 single unit rentals and realize this isn't apples to apples.

Multi asking $270k

3-of-4 townhouses in a quadplex.

2br 1.5ba 1000sf with updated flooring appropriate for market

Rent currently for 850 each ($30,600), existing tenants through August 2016

Expenses:

Mortgage ($216k, 4.5%, 25y, $1200/mo) 14400
Taxes   3783  
HOA (Insurance, Water, Pest, Landscaping)   4140  
Maint (7% of rent)   2142  
Management (10%)   3060  
Metrics


Net Income     3075
CAP 6.72%
COC 5.91%

Some room to increase rent. If we could move it to 950 in a year, even with 90% tenancy, numbers remain roughly even. This area rents immediately. Also, the seller currently runs the HOA for the 4 units, which

Single condo:

1Br 1Ba, 670 sf split level

Rents for $650 ($7800)

Expenses:

Mortgage ($47k, 4.5%, 25y, $300/mo) 3600
Taxes   600  
HOA (Insurance, Water, Pest, Landscaping)   1920  
Maint (7% of rent)   546  
Management (10%)   780  
 Metrics    
Net Income     354
CAP 6.88%
COC 3.08%

So, my question is: either, neither, or both worth the investment?  I'm happy to give more details if they're helpful.  Thanks in advance for your time and expertise!!

-Will

Are the tenants paying all utilities ? water, electric, garbage ? if they are, the numbers seem good for the townhouses , the condo you are bringing in $29/ month ( if your figures are yearly, which it seems) although if you have no maintenance costs, that's money you are making. i say they are a good investment.

In both scenarios the tenants pay utilities.  

I read every day not to pay market price (retail), so I'm also interested if you'd use CAP to justify an offering price. I realize there is a ton that goes into that calculation and can't easily be put into a post...

Thanks!

You can, depending on the normal cap for the area or the cap that you would like to receive. like you will find as a message here at BP you will make money on how good of a deal you can get when you purchase, starts from the beginning. Purchase price= NOI / Cap rate. if you use that math it would be 3075/ 6.72=$45,758 purchase price to achieve that cap rate for the townhomes. i came up with a cap rate of 1% based on your NOI and purchase price. CAP= NOI / Property price

WILL, sorry i was away past couple days, but this did hit me, you had the Mortgage in your net income, mortgage is not included when you figure the NOI. so your NOI for the town homes is $17,475. so your purchase price based on 6.72 should be $260,045 for that Cap RETURN if you wanted a 10 cap, it would be $174,750