Hello BiggerPockets! I am new to rental property and/or multi family property and would appreciate anyone's advice on the below opportunity I am looking at purchasing:
I am looking at a 7 year old triplex unit in TX. The negotiated price is $115k. My local bank is offering 15% down, 7 year note, 30 year amortization. Details with triplex are:
100% occupied, all on one year leases 7 years old, all brick unit 3-one bedroom/one bath units $550/month rent each-$1650/month Landlord pays water/trash- $125
Insurance- $100 ??
Property Mgmt- $165
With your experience would you consider this to be a solid first multifamily investment? It seems to be from my end, however, I am newer to figuring multifamily investments. Thanks for your help!!
That sounds like a good buy if there isn't any deferred maintenance, though I don't see anything for lawn care.
Looks like a good deal from what you've posted here. Many investors don't agree with me, but I always recommend that you manage properties when you begin. If you don't know how to manage a property, how do you manage a property manager? You need to know when you are getting good service and how to screen tenants, ect. That type of experience will greatly inform how you operate in the future, self managing or not.
Sorry about the unsolicited advice- good luck!
All great advice and thank you! The unit is in a 15k population town with a small junior college.
My father in law will be managing, I built in 10% to look at the unit as if I did not have someone like him to manage for me.
There is very little yard to maintain as most is paved concrete parking.
Great questions and again thank you!
Put those numbers into one of the property analysis calculators. Be conservative. Don’t be tempted to go with best case scenarios. Be conservative. The calculators will tell the story. They are very useful.
I have plugged everything in, very conservative and cash flow is around $300/month, or 12% cash on cash return. Is this a good deal? This was considering $165/month for property management I won't really be paying but wanted to view thru a conservative viewpoint.
Howdy @Matt Brooks
This deal can be good or bad.
First you have not indicated the current condition of the property. You also have not accounted for any Maintenance or CapEx reserves. The amount to holdout will depend on the condition of the property. I would suggest until you can get better information to start with a minimum of 5% ($82.50) for Maintenance 10% would be better and 10% ($165) for CapEx. Once you have the property inspected you can adjust to a more accurate estimate. There are other miscellaneous expenses that should be identified (i.e. landscaping, pest management, legal, accounting). Keep the PM in your analysis even if you decide to self manage at first. It will be difficult to add it later if you need it.
What is the current Market Value of similar properties? You need to know if you are overpaying, buying at a discount, or the right price. This is extremely important since you are using a Balloon Mortgage. It will provide you with lower loan payments that improve your cash flow (always a good thing). However, you need to line up your exit strategy before entering this type mortgage. Will you sell before the 7 year deadline? Will you refinance into another mortgage? Both will require a new appraisal on your property. Will it be worth more or less? If less then "Houston we have a problem!" starts ringing in your ears.
What interest rate and projected payments were you expecting?
Also, as others have mentioned, be sure to thoroughly research the area/neighborhood.