Real Estate Professional · Redmond, WA · Member since 2015 · 67 posts · 47 votes
A broker friend of mine has a multi-family listing that has not moved yet and he's trying to see what can be done to make it more attractive as an investment. I gave him some thoughts, but I'd love to hear what the real experts in the BP nation have to say.
It's a remodeled triplex, in Auburn, WA*, listed for $390k. Rents are currently $3150/month for all three units combined. Annual costs are listed as $4380 (tax), $2200 (insurance), $2488 (w/g/s). Cap rate at list price would be ~7.4%.
Assuming 25% down, no fix up costs, reserves of 16%, and a property management estimate of 10%, an investor would only cash flow about $95/month. Given the ~$100k cash investment, the cash on cash return seems pretty poor.
How else can this deal be analyzed, or what could be done to make this more attractive to an investor? I appreciate any thoughts or feedback!
*Auburn is South of Seattle, Bellevue & Renton, and just East of Tacoma.
Banker · Perth, Australia · Member since 2016 · 14 posts · 15 votes
10y
That's a tough sell with that rate of return. I'm also curious to see if anyone can recommend something here. We're in Seattle, doing projects in town, and although the purchase prices are much higher we're seeing good rates of return on cash. But we're also buying properties that haven't realized their rental potential yet. This particular property, there doesn't seem to be anyplace to go on it unless those rents are below market.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
10y
Ben Meisel It's priced to high for CF. why would you put a bunch of money in 3 doors for less than $100 dollars a month. You didn't mention any way to increase rents or improve the property or even appreciation. I can't see any savy investor buying it for an investment. You can change any numbers you want, and advertise it however you see fit, but if somebody does any DD they will find out the true picture and walk. CAP rate means nothing on a triplex, and generally is not relevant to value on less than 5 units. Small multi family's are valued by comps instead. Cap rate when applied to property value is used as a comparison against cap rates on other commercial properties in the area to determine what the market is paying for a given return in the area. The seller needs to figure out how bad he wants out. A good broker should know all the above. RR
Investor · Jacksonville, FL · Member since 2014 · 186 posts · 34 votes
10y
I'm not going to repeat what has already been said, but it's basically a speculation play for a potential buyer. There is a ton of risk in taking a property like this on, and very little in the way of cashflow to pocket while the appreciation is gambled on.
Real Estate Professional · Redmond, WA · Member since 2015 · 67 posts · 47 votes
10y
Thanks for the feedback, much appreciated. Assuming there is no great way to add further value to the property (via rehab or rent increases), the high list price combined with a low cash flow appears to be the primary issue. Otherwise, it would have to be a speculation/appreciation play, which likely appeals to fewer investors for this property type.