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.
Let me know what you think...
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%).
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.
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?
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!
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.
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?
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.
@Russ Fry $100 per door is great if you have 100 doors, but for one house it is complete crap. You have to put these numbers in perspective.
@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?
@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.
@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.
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.
Nice, well good luck! Keep us updated.
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