This will be my first deal.
A 3 Plex listed at $59,900. I plan to ask for less but I'm basing my #s off of the $59,900.
(They came down $10k over a month ago.)
These are currently occupied to HUD renters.
Rents for each unit:
Unit 1) $513
Unit 2) $450
Unit 3) $400
Total monthly rent= $1363
Annual NOI= $16,356
27.3% CAP rate
I don't plan to use property management on 3 units but for the future I will..
$1363 x .10= $136.30
$681.50- $136.30= $545.20
Estimating Taxes/ Ins/ Mortgage On $59,900
$545.20- $383= $162.20/ 3 units
= $54.06 cash flow/ units
Is this a good deal? I know the rule of thumb is $200/ unit or the 2% rule. This is only $54.06 cash flow/ unit but a 2.27% rent return on the asking price.
Am I missing something? Have I over analyzed/ under analyzed? What are your thoughts on this deal?
2% rule does not work in all areas. I have seen as low as $100 per door as a minimum.
From what I have seen/read, the 50% rule is a very conservative number, and having a 2.27% rent return is great. How old is the property? Are there cap-ex repairs that need to be done on the property? (HVAC, roof, etc..) Do you have any history on the maintenance of the property to see if your estimate of $681/mo in repairs is accurate?
I'm going to look at the property this Friday and will know more in regards to cap ex repairs. I asked the listing agent and she did not answer.
That leads to another question though. The property is pretty crummy on the outside. It could use a new porch and siding. Do you recommend spending the extra capital (if I can even get a hold of extra capital) on cosmetic repairs? I ask this because the units are rented to HUD renters and I don't think I'm able to increase rent. Would I be able to recapture my funds with a refi? Or would I just be eating into my cash flow by doing any cosmetic repairs?
I'm new to the real estate investment market as well. I have analyzed (probably over analyzed ) numerous properties using various metrics. I found that the Cash-on-Cash metric is valuable for evaluating an investment in a situation such as yours. Not sure what your putting down, but if your cash-on-cash returns are in the 18-20% range your in a good place. Being a HUD your rents will be capped so I don't see you gaining much return on your rehab investments other than to maintain your property for longevity.
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