Need so much help analyzing cash purchase of 2 or more properties

3 Replies

Buyer (me) has a sh!#load of cash burning a hole in my pocket, enough cash for 4 or 5 of these cheap houses. Seller (a landlord) wants to sell multiple houses/two-flats and 1031 exchange them for bigger & better things (he has 20+ properties). Traditional mortgages are off the table for me, and seller financing doesn't seem to make sense, because then how would you do the 1031 exchange?

MY INVESTMENT GOALS:

I invest in traditional investment vehicles as well. They are performing very well, at 10%-15% ROI. I WANT TO BEAT THESE NUMBERS BY INVESTING IN RENTALS.

ESTIMATING EXPENSES:

Properties are all in the same area, are about 100 years old; (almost) all have tenants, and could do with similar amounts of minor maintenance; major issues can be identified before closing and purchase cost can be adjusted accordingly. I'm not from the area, and am new to investing, so I could use any feedback you have on these numbers. I'm using roughly the same expenses for all the properties, and I'm trying to be conservative. Maybe too conservative?

One-time Expenses

$1000 - Acquisition Costs (minor rehab, legal, & inspection)

Annualized Expenses

10% Gross Annual Rent - Vacancy Costs (turnover & lost rent)

10% Gross Annual Rent - Property Mgmt (standard)

$1176 - Repairs & CapEx ($1 per sq foot for tpical property)

$1516.46 - Property Taxes (5 year historical average for typical property + 10%)

$1000 - Property Insurance (a nice round number: seller reported that he paid $708/mo for one duplex)

$27 - Water & Sewer (average across several properties from last month)

$0 - Gas, Electric, HOA, Snow Removal (tenant pays or not applicable)

$60 - Lawn Care (I made this number up)

COMPARATIVE ANALYSIS:

This is my analysis of the five properties that are being negotiated right now, listed from best to worst.

Property Alpha (two-flat)

$1250 - Income, Monthly (actual)

$567.37 - Expenses, Monthly (estimated)

$42,000 - Price, Signed Contract

36% - Cap Rate (Annualized Income / Price)

16.6% - ROI, After Tax (annually, assuming 15% income tax)

6.0 Yrs - Until this property pays itself off

Property Bravo (two-flat)

$1100 - Income, Monthly (actual)

$537.37 - Expenses, Monthly (estimated)

$42,500 - Price, Signed Contract

31% - Cap Rate (Annualized Income / Price)

13.1% - ROI, After Tax (annually, assuming 15% income tax)

7.6 Yrs - Until this property pays itself off

Property Charlie (duplex)

$1075 - Income, Monthly (actual)

$532.37 - Expenses, Monthly (estimated)

$55,000 - Price, Informal Discussion

23% - Cap Rate (Annualized Income / Price)

10.7% - ROI, After Tax (annually, assuming 15% income tax)

10.3 Yrs - Until this property pays itself off

Property Delta (SFR)

$875 - Income, Monthly (actual)

$492.37 - Expenses, Monthly (estimated)

$48,000 - Price, Informal Discussion

22% - Cap Rate (Annualized Income / Price)

8.8% - ROI, After Tax (annually, assuming 15% income tax)

13.6 Yrs - Until this property pays itself off

Property Echo (SFR)

$770 - Income, Monthly (actual)

$471.37 - Expenses, Monthly (estimated)

$62,500 - Price, Informal Discussion

15% - Cap Rate (Annualized Income / Price)

4.1% - ROI, After Tax (annually, assuming 15% income tax)

24.4 Yrs - Until this property pays itself off

Notice how the price keeps going up? The seller has been saying that he has realized how out-of-touch he is with housing prices today, and that future asking prices will be more in line with the market.

I think Alpha and Bravo were steals. Do I buy the rest? What should I pay?

Just to complicate things, I'm trying to convince him to sell me an option to buy Bravo, Charlie, and Delta all at once in the next few months while I get together more cash, but I'm afraid that ship may have sailed, along with the prices I haven't already nailed down.

Please, HELP ME WITH THIS!