My first MFH Deal. Worth it??

16 Replies

Hi All,

I am looking to buy my first MFH with the view to add an additional one every year for the next 3-5 years, possibly even look into something bigger. Anyways...

House listed at $132,000
Got them down to $105,000
Rents would be $750 (2Be/1Ba) & $850 (3Be/1Ba)
Needs: New roof $14k, Furnace $3k Touch Up $3k,
All in: $125k
FHA: 3.5% DP
Closing Costs: $8200
House has been appraised by FHA at $105,000

Monthly:
Rent: +$1600
PITI: -$780
Vacancy: -$130
Maintenance: -$120
Cash Flow: $570

I realize this may not be the greatest numbers however knowing that I have replaced the roof and furnaces would relieve me of any significant costs for 10+ years.

Is it a good deal?

Thoughts and advice welcome :)

Closing costs does not look right. 8200 ?

If I understand correctly - your total cash out is =  25,175.00

  1. 3.5% DP + Closing costs + 20K rehab cost 
  2. 3675 + 1500 + 20K)  = 25,175.00 

Cash flow is = $570/Month = 6840/year

Cash on Cash Return = 27% which is good

Note: I am assuming 1500 is your closing costs.

However, if closing costs are 8200, then your cash out is = 31,875.

Cash on Cash Return = 21% which is also good.

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Sajju Shah

Below is everything needed at closing. Sorry I think I got terminology mixed up in my previous post...

Sent from bank:
$105,000 sale price FHA 3.5% Down

$3,675 down payment
1,769 closing costs
199 Coldwell Banker admin fee
3,749 Prepaids (One year house insurance, July 1 tax bill, and monies towards future tax/insur bills)
-1,032 credit (est) from seller for taxes (prorated from January 1 – June 30)
$8,360 needed at close before deposits, and not counting inspection costs.

Let me know thoughts now seeing this info.

Really appreciate it!

I don't see a property management fee in your numbers.  I am assuming you are doing the property management yourself. Even if that is true, you still need to include it in your calculations. Otherwise, you are working for free. My numbers may be slightly different but I am calculating the following:

CoC = 12.4%

Cap Rate = 8.3%

I invest in the Midwest and those would still be good numbers. 

@Tony Cook undefined

Here are my numbers. 

Purchase price - $105,000

Downpayment -  $3,675

Renovations - $20,000

Closing costs - $3,000

Rent - $1600

Vacancy - $160

PITI - $753

Property Management - $192

Maintenance - $120

CapEx - $100

CoC - 12.4%

Cap Rate - 8.3%

DSCR - 1.6

I included CapEx as things will break in the next 10 years. And if they don't, you will need to be putting money away even though the roof, furnace, etc. are new. There are many other things included in CapEx that will need to be replaced (carpet, appliances, paint, etc.). $12,000 in 10 years will go fast. Not to mention you are half way to a needing a new roof. @James Gilpin since you did not include property management, I assumed you will be managing the property yourself. As I stated earlier, you need to include this in your calculations, to have a true comparison. The money is still yours as you are paying yourself to manage the property.

@Roger Pokorny thiat makes total sense! I am still in the "educate myself" phase and that explanation really helped a lot ! Is there a typical CoC or Cap Rate that you would never go below? I hear anything above 8 on the cap rate is ideal but there are obviously a lot of other variables to take into consideration.

@James Gilpin I assume you plan to live in one of the units since you're proposing an FHA loan (your description didn't make that clear) and will be self-managing since you'll be living there. Also, I don't see any utilities in your expenses.

And, $100/m in Capex reserve contributions goes really fast for two units - there's a lot of things that will need replacing in the next 10 years, and your total of $12k in Capex reserves will go fast.

That said, the returns look good on paper.  How returns look on paper are merely an indicator of whether it's a good deal.  :)

@Tony Cook undefined

When I evaluate a property I am looking for a cap rate of 8% and CoC of 10%. I am also looking for a minimum of $100/unit cash flow for multi-family and $150/unit for SFH. I know those are lower than some other people but in Indiana that is as good as I can get.

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@James Gilpin

I would figured at least 10% of gross rents for vacancy rate as multifam properties take longer to rent out. In our market we go from 2-4 weeks for single fam to 4-8 weeks for multi...

@James Gilpin I use the same method as @Roger Pokorny and I have the same beliefs regarding CapEx, maintenance, and property management. Analyze your deals including them, it is always nice to have an emergency fund even if nothing goes wrong (it will) in 10 years. Having said that I think it is a good deal! Let us know how it goes!