West Chicago, IL · Member since 2017 · 24 posts · 14 votes
So I found a 8 unit multifamily asking $325k. All 8 units rent for $800 including utilities. I did an analyst on BP which I provided below. Let me know what you think. I feel it is a pretty good deal since I ran the numbers at $5000 off asking price. I would prob not go in at that because this property has been on the market for close to a year.
I have looked into the area. It is the 7th largest county in IL based off Population. 34% of the population rents and the median age is 38 with an average household income of $49578. Numbers were based off a 2015 census.
Now to figure out how to raise the down payment and do a little more research into the property and area.
El Cerrito, CA · Member since 2015 · 257 posts · 129 votes
8y
I'm no expert by any means but I'm just going to share my opinion. The following look low in your expenses: vacancy, property taxes and electricity. How did you come up with those numbers? I should say that the vacancy is low per what MOST people around here advise (8-10%).
West Chicago, IL · Member since 2017 · 24 posts · 14 votes
8y
Taxes are from the county verified, electric is just for common areas since tenants pay all utilities. I went with 3% vacancy cause if one unit is vacant for 12 months that equals 3% of purchase price. Again these are preliminary numbers just to see if this would be worth digging further into. I can re-run it with a 10% vacancy and see.
Investor · Milpitas, CA · Member since 2015 · 71 posts · 72 votes
8y
3% vacancy seems extremely optimistic. If this is one of your first properties in the area, why not underwrite it more pessimistically?
Even when I bought turnkey and the providers told me across the board they see 3% vacancy, I still underwrite it as like 8%. That way I'll only ever be pleasantly surprised. I try not to run my numbers tight--that is, I try to have it be somewhat in line with reality but a bit more pessimistic (i.e. I'd make a 3% vacancy look like 8% but probably I won't underwrite a 3% vacancy as 30% since I'll never find a deal that way).
If you want a more grounded research, you might just call PMs that manage that asset class and ask about what they see as vacancy in that area; perhaps a better strategy than just an assumption of one unit vacant for a year since that's sorta...random? 30 minutes surveying 6 PMs seems like a reasonable investment for $325k.
But everything else looks somewhat reasonable.
Was curious what MFH investors think about 5% repair?
West Chicago, IL · Member since 2017 · 24 posts · 14 votes
8y
So I re-ran the numbers using 8% for vacancy and 8% repairs. The cash flow dropped to 1073 a month and CoCROI dropped to 14.72%. If I run the numbers at purchasing the property at a 7% discount off asking the cash flow goes to 1171 and the CoCROI goes to 16.92%.
Thanks for the info I'm learning!
Rental Property Investor · Raleigh, NC · Member since 2012 · 56 posts · 23 votes
8y
Hi Russ - for vacancy, you'll measure it based on the % of total rents. So if 1 of the 8 units is vacant for the whole year, that's 12.5% vacancy. I have a hard time using less than 10% vacancy. Fixing a unit up and getting it re-rented can take some time, and the rare eviction can be a long-lasting process. For repairs and capex, you were fairly close the first time around, with 10% and 5% respectively usually being pretty good estimates depending on the age and condition of the building.
West Chicago, IL · Member since 2017 · 24 posts · 14 votes
8y
thank you everyone for the input. What type of a cash flow do you consider a solid property? I have watch a couple of Brandon Turners webinars and he seems to favor the $100 per door cash flow. That's kinda what I have been looking for. What are your thoughts?
Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
8y
If you found a SFR that rents for $800 per month or $9600 per year that you could buy for $40,625 would you buy it? There is no such thing as a bad property, just bad management.
Indianapolis, IN · Member since 2017 · 28 posts · 3 votes
8y
Russ Fry what are you plans on downpayment? Do you have 20% ready to put down or trying to raise money from investors? What are your next steps if numbers check out ok?
West Chicago, IL · Member since 2017 · 24 posts · 14 votes
8y
@Matthew Bennett my next steps would be to contact the listing broker to get current rent rolls and expenses for the past 12-24 months. Once I have all the hard numbers of it still looked like a solid deal I would that a quick ride out to the property to do some due diligence about the area. It's only an hour from where I live. If it still looks good then I would look to raise the 20-25% down.
Indianapolis, IN · Member since 2017 · 28 posts · 3 votes
8y
Russ Fry Do you have people listed who you know you're going to reach out to? What I've seen in the past is that it's better / easier to have investors open and in a verbal agreement that if you find a good deal within a certain range that they'd be willing to invest. Just a thought - that way, if everything is solid then you can act quicker in terms of your offer and try to close quick.
West Chicago, IL · Member since 2017 · 24 posts · 14 votes
8y
No I haven't found many investors yet. I have couple people I know personally. I just started this journey and am still working at networking. I'm going to attend some local REI meetings next month.