Please Help Me Analyze this Triplex in Charlotte, NC
Hi BP Community, I have a triplex under contract that I'd like your help in analyzing. I have experience with single family homes, but none with multifamily.
The contract price is 215k. Rent between the three units is $2,100. I've estimated the following expenses:
Management (210) Assumes 10%
Vacancy (126) Assumes 6%
Property Taxes (175)
Lawn Maintenance (100)
Repairs (360)
Water (200)
Insurance (150)
CapEx Reserve (300) Does this seem reasonable?
Total Expenses (1,627)
NOI 473 2.64% cap rate
It's pretty clear that as is, this property is terrible from a cash flow perspective. The reason I'm still considering it is (1) I think rents are below market and (2) it's in a part of Charlotte that is close to uptown and likely to appreciate above average as Charlotte continues to grow. Several surveys rank Charlotte as one of the fastest growing cities in America.
My plan would be to raise rents to $800 / month and install meters so that the tenants pay for their own water. That would be a $500 / month swing in NOI and get the cap rate to 5.00%. However, it also means each tenant on average would pay $167 more than they are accustomed to which could mean a lot of turnover initially. (On average, the tenants have been there 5 years and the landlord has not increased rents in line with market rates.)
The second part of the plan is to renovate the units as tenants vacate with new kitchens, baths, flooring, etc for about 15k per unit. This should make the units among the most attractive in the area and I believe I could then raise rents to at least 900 / month per unit. The cap rate only improves to around 5.30% given the 45k in renovations, but I believe having fully renovated units will let me capture any rent / price increases in the area more successfully if the area does indeed experience a rapid boom.
While I do not like to count on appreciation when I buy, at a 5+% cap rate, the property is paying for itself and so any price appreciation would be a bonus. I do wonder whether a triplex is the best way to capitalize on price appreciation, though, as I would be limited to selling to other investors and not owner occupants.
Are my repair and CapEx assumptions too high? I tend to be very conservative in my modeling, but want to be reasonable so I don't pass on a good deal unnecessarily.
Lots of people talk about how duplexes and triplexes cash flow better, but based on my modeling, I am not seeing that. Rents are not any higher, but expenses are ($200 for utilities + $100 for lawn maintenance). Am I missing something?
Sorry for the wall of text and many thanks in advance!