Good Evening Everyone,
I am on the brink of my very first multi-family deal.
Counteroffer from Seller = $187,600
Tri-Plex with a garage are currently renting for $2200 a month.
Brief Description: Built in the 1900's. Metal roof painted and sealed, flat roof replaced in 14'. Most plumbing converted to PEX. Upgrades include, but not limited to, new cabinets, counters, sinks, faucets, appliances, stackable washer/dryers, toilets, vanities, carpet, paint, and smartkey door locks in all units (2014).
I will be giving cash for keys to one of the tenants and living in one of the units. Would you take this deal?? When i run the numbers, i believe it works; what do you think?
@Niyi A. If the numbers work, then do it! But no one can give you helpful advice with the information you provided. Imagine if someone was selling you a car and you listed the purchase price and said it has a new paint job. Should I buy it? No one can give advice to that.
You need to add type of neighborhood (working class, warzone, upperclass etc...), taxes, insurance, repairs, cap ex, management or self management, utilities, etc..... There's a lot to consider when purchasing a property. Without the full picture, BP forums cannot help.
@Christian Bors True, thank you Christian. It's within a mile of the university of Louisville, mostly students or recent grads on the block. It's not an upper class neighborhood, but it's not a warzone either, if I had to honestly rank it I would say C-class.
I'm going to have the inspector come in this Saturday and will be able to update the Cap-Ex. I plan to self manage using the buildium platform to automate a lot and screen tenants. Utilities are separately metered, (3 water heaters but only one furnace. Not sure if that is an issue). Owner pays sewage and water. Tenants pay electric and gas.
Prior to inspection, I don't see a cap-ex coming soon. I believe I would have enough capital to cover as well.
@Niyi A. you should at least add 20-30% in expenses to cover repairs, future repairs and vacancy.
Not sure how the tenants would pay for gas if there's only 1 furnace unless it's not shared between the units.
Be sure you have cash on hand for repairs. I greatly underestimated the out of pocket repair costs of my first multi family. It's everything you would expect from a rental x 3. So, it will be a lot of unexpected cash. Look closely at the quality of the '14 remodel. If they used carpet, it may be a sign they were doing it on the cheap and you'll be left with the resulting problems x 3. The numbers look okay (if no deferred maintenance), especially with you living there. That's the safest way to get into investing.
Is the 2200 per month for the 3 units or only two? If that is for all three units and you take one to live in that will greatly affect your monthly cash flow.
I know several investors who have had success in that area of town.
A lot of rehabbers skimp on the expensive capex items. You said that there is new pex, I would look for new water heaters, furnace, and AC. Also, you said that it was separately metered, find out when the wiring was updated last too. The houses in the area are very old and you wouldn't want to run into those issues.
The numbers work. Above someone mentioned a house hack. Sounds like a good house hack in an area with potential.
@Christian Bors Will do, and great question about the furnace. That is the first question i will ask the inspector on Saturday.
@Matt Lavinder They did use carpet in the bedroom and now that i think about it on the stairs as well. The person that purchased this property did so in september of 2014, he is looking to move into apartment complexes so he is liquidating his stock. I also saw the house directly next to this listed for 163K and that house was run down and awkward but still rented for good amount. I believe the gross rent on this could be raised from $2200 to $2400.
@David Heath $2200 for all three plus the garage. I'm preapproved for an FHA loan at 3.375%. I would live in one of the units for the required time (learn first hand how to handle the day in and day out of a landlord/property manager) and then move out. Estimated Mortgage $875
@James Wright Thank you, i took down notes and will make sure i get answers to those questions. My thoughts exactly about the House Hack. This will allow me to cover the mortgage and expenses based off 50% rule allowing me to live for free and save my current rent checks for more investments.
ALL- Thank you for the responses fellas. I truly love this website and will be purchasing a pro membership soon. I plan to use one of my 5 free Buy/Hold calculations to run the REAL numbers this weekend. Counter offer has been sent, acceptance should be coming soon.
I am now 6 days away from the end of the inspection period, below is what the complete analysis of the property looks like as is. The previous owner was an investor also and he took very good care of this place. He said he had only one maintenance request in the past 12 months, and after combing through the property with the inspector i actually believe him.
Previous owner is selling this so that he can upgrade to an apartment complex. You all helped so much before, please let me know what you think after viewing the link below.
In order to answer this we/you need to know what the expenses are? It might sound good but what if taxes are way overpriced or the utilites aren't seperate? Who pays utilities?
After seeing the numbers, assuming they are correct. There is not enough meat on the bone for me to do this deal.
You would only be cash flowing $186.00 a month, that's only $62 a unit.
However I don't know your area. Maybe that is good cash flow for your area. For me, I look for at least $120-$150 a month in cash flow per unit.
Are the rents at market rates? Can they be increased? Is there any value add opertunities to make this a better deal?
With you living there you would be paying around $490 to live, assuming you take one of the lower performing units. I'm not sure if that's good for your area???
@Mike Hanneman good point it is a very tight cash flow. M
I took a look at the competition in the area, and this is one of 2 houses that has a washer and dryer in each unit and a brand new garage in back. I believe with these features I can bump rent to $800 per unit. ($800 for the 2 bed 1 bath, $800 fro 2 bed 1 bath, $800 for 1 bed 1 bath with garage spot, extra garage spot $75 to whichever other unit wants to rent.)
Other consideration, I currently live less than 5 mins away and pay $1100 per month in rent. This is directly adjacent to a neighborhood that is booming. Although yes I would be paying to live still it may be significantly less and allow me to save more for a better deal in 2017. Plus I am blessed to have a great sales job that will allow me to not take any money/cash flow out of the property.
That being said, I'm still in the inspection period until thus Thursday and I can walk away.
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