Property Analysis Feedback

[Justin K.]

Below is detail on a property in Niagara County , NY. I analyzed this property earlier this year and just closed on the deal last month. I have some lessons learned including the expectation that I was not as conservative with the maint/CapEx/Vac as I should have been for a multi-building lower income property. I'm curious to hear what the community has to say. Thanks!

The property consists of two detached buildings. The front building was built in 1900 and has a 2 BR unit lower (current rent 675) and a 1 BR upper (current rent 500). The back building was built in 1920 and consists of 4 1 BR units. The property has mostly new furnaces and water tanks. Some new windows, and a moderate amount of smaller differed maintenance (broken door handles etc). These are lower income apartments with 3 units receiving Sec 8 assistance.

Purchase Price: 157,000
Units: 6
Annual gross: 38,340
Taxes: 4,547
Gas (Landlord): 2,380
Water: 2,280
Insurance: 1,708
Maintenance(5%): 1,917
Snow Removal: 650
Cap Ex: 1,200
5% Vacancy: 1,917
Debt Service: 860

[Joe Villeneuve]

If I'm ready your numbers correctly, you are positive on the year at $20,686....or about $1700/month.

Don't figure Vacancy based on a 5%.  I've never seen any rental unit, where only 5% of it is vacant.  It's either vacant, or it isn't.  Calculate vacancy this way...based on what actually happens:

1 - Find out what the vacancy rate is for your units (this isn't a "%", it's a number of months per year.
2 - Calculate what you would need to cover per month when a unit is vacant....i.e..Taxes, Gas, water, Ins, Snow (if Winter...figure it would be), utilities, D.S
3 - Multiply your answer in #1 x your answer in #2.
4 - Take all of the positive cash flow in the first months, and put it into a reserve, until the reserve totals your answer in #3.

Now your are actually got your vacancy covered.

CAPEX is another matter. REI love to take out a "%" and think they are doing something right...and they'd be wrong. Doing that will make you feel good, right up to the time you get a CAPEX expense...like a new roof. How much would a new roof cost you on your 4 unit building? How many years, at $1200/year, would it take you before you can afford to replace it? This doesn't work.

Go out and get an LOC, that you can use for all of your rentals. ONLY use it as your CAPEX fund, when needed. Replace/payoff the use of it from the cash flow as you see fit.