Investor · Lutz, FL · Member since 2016 · 66 posts · 17 votes
Hi all, I need some expert advice. Looking at 4 unit apartment building in northern part of Tampa bay area.
Purchase price $195,000 (30% down payment)
Tax $2006/yr
Insurance $2700/yr
Vacancy (6%) $1170/yr
Reserves $2000/yr
Self management with some hired help $1560/yr
No cap ex needed, turnkey, full rented
Current gross rents $28,200 (annual), rents are undermarket, full potential $31000
Is this a good deal or not? Am I missing anything in my analysis? Pl critique.
Thanks so much for your help. I am very impressed by collective knowledge of BP members and more importantly willingness to share and educate others. Keep up the great work, BP!!
Rental Property Investor · Asheville, NC · Member since 2015 · 307 posts · 127 votes
10y
Up your vacancy to 10%, and ALWAYS ALWAYS ALWAYS!!!! factor Cap Ex! Can't stress that enough!! For a duplec or larger, you have 1x the problems of a single family for each unit - You need to hold a minimum of 5% per month for Cap Ex, the smart thing to do would be to hold 5% for Cap Ex, and 2.5% for repairs - better to hold too much, than not enough.
Whether you hire management or not, always factor the cost in. I know that most of Tampa is 10-12% of gross collected. If you factor the cost in, it's your extra pay; if you're sick of dealing with the tenants, hire someone and go look for the next one.
Overall, I'd say you have a good deal here, but I'm happy with mortgage plus 5% net.
Investor · Lutz, FL · Member since 2016 · 66 posts · 17 votes
10y
Ben, thanks so much for your valuable input. Really appreciate it. If I go with higher repair reserve, cap ex and full mgmt cost, then cap rate is less than 10. So maybe I need to rethink this deal.
Investor · Lutz, FL · Member since 2016 · 66 posts · 17 votes
10y
Ben, quick question. I need some clarification, when you say 10% vacancy, its 10% of what, gross income or purchase price. Similarly, cap ex 5% per month and repair 2.5% per month, is that percent of gross income? Also I gather above percentage of cap ex and repair are per unit? I am still learning the lingo. Thanks for helping.
One of the items you listed is "Reserves $2000/yr"? What are you reserving? Many investors mean Cap Ex when they use the term "Reserves".
As stated above, you should budget for Cap Ex. But Cap ex is not a component of cap rates, so it does not affect cap rates.
Speaking of cap rates....not sure how useful cap rates are in this analysis (I would look more closely at Cash on Cash), but why do you need to rethink this deal at 10 cap rate?