Please help evaluate this deal

8 Replies

Hi all, 

First time poster and first time investor from southern NJ. Please let me know what you think about this deal. Please excuse the layout of these numbers, it didn't transfer well.

Unit 1 10098
Unit 2 10098
Unit 3 10098
Unit 4   10098
Gross Income   40,392
Vacancy @ 8% 3,231
Effective Gross 37,161
 
Expenses:  
Taxes 6,640
Insurance 1,384
Utilities 900
Misc. 870
Water/Sewer 3,482
Management @ 3% 1,115
Replacment Res @ 5% 1,858
 
Total Expenses   16,249
   
Net Operating Income   20,912
 
Loan amount   150,000
Interest Rate   5.00%
Term   300
Monthly Payment   $ 876.89
Annual Payment   10,523 

The property is listed at 225K but i believe is overvalued and could be gotten for close to 200k. The loan numbers reflect that in my calculations. An LLC has been formed with a partner and 25% will be put down on a commercial loan. The apartment is also 100% section 8 occupied with a very solid rental history. The former owner managed the property himself and said the NOI is closer to 26k, if i was to go that way. A few additional questions, what are your thoughts on section 8 tenants? Can i legally raise rent on section 8 tenants? Is the cash flow on this property good enough for me to ignore the fact that I DO NOT KNOW what will happen to real estate values in this town in future years. It is not a ghetto or a crumbling town but i would not expect heavy long term appreciation, im just unsure. This deal caught my eye because it is very difficult to get this much cash flow with such a low purchase price in my area. Any help is appreciated. Thanks

What the heck you buying that collects $10098 a unit with section 8 tenants for $225,000

I'll take that as a good sign. $840/month even for a less than upscale town is about as cheap as rents can possibly get in the area.

Property management should be at 10% not at 3%.

You're right, I overlooked that. Surprisingly this calculator came from the lender. Thanks.

Originally posted by @Chris Connery :

You're right, I overlooked that. Surprisingly this calculator came from the lender. Thanks.

 No problem. You always want to double check your analysis and re-run your numbers to make sure everything is right.

Any input on the actual deal would be greatly appreciated

In terms of section 8 there are rules and limitations on raising the rent. You would need to check with your local housing authority. You can try and raise rent and they can approve or deny it. Every county has their own housing authority. I'm in the Philly suburb area and there are differences just between Chester and Montgomery counties.

As mentioned your PM % is to low. Also think your reserves might be low for section 8 but that is also impacted by age and condition.

Make sure you find a PM with significant experience in subsidized housing

Not sure there is a huge return there but maybe

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