Deal Analysis Multi Family (Noob)

8 Replies

Hello Everyone, Doing a lot of deal analysis for practice. Cranking out a few a night. Getting close to my first deal. Came across this 6 unit multifamily (all 2 bed, 1 bath) in a B class neighborhood. Its in a nice area and seems to be in great shape. Going to look at it this weekend. 2 of 6 apartments are leased until Dec. The rest are TAW. I'm sure I missed something or provided unrealistic estimates. I would really appreciate your feedback. 

=====The Damage======

List Price: 475,000

Ask Price: 435,000 (30 year, 20% down, 4.3%)

Down:       87,000

Closing:    4,000

Repairs:    2,000 

=====Monthly Expenses=====

P&I:         1,722        Vacancy:        300 (5%)  

Taxes:     710           Cap/Rep:       600 (10%)

Insur.:     441           Waters:          250 

Mgmt:     600           Elec:               89

                                  Gas:                89

Total:       4801.15

=====Dat Rent=====

6 units, 2 bed 1 bath, $1000 each (Conservative for the area)

Total: $6000

=====The Numbers=====

 CashFlow:        1198.85 (199 a door)

CashOnCash:   15.47%

Cap:                    8.06%

2%Rule:             1.36%

Hey Bobby! Congrats on that find!! In MN, I found a duplex for $365k, so Im jealous of you haha

Okay, so 1 thing I noticed right off the bat, is the finance terms will likely be different, due to it being over 4 units. You will need a commercial loan (I believe) for this, which involves higher interest and usually a shorter term. Again, i'd double check this, but I am pretty certain on it.

Maybe bump up repair costs a bit, since it is 6 separate units, and you may want to do some updating and what not. Doesn't hurt to be conservative in running the numbers

I believe everything else looked pretty good!

I agree with @Jake Stuttgen , the financing looks a little off for the property and current climate.  I am not sure if you have hooked up with a loan originator yet but I don't think you will find 4.3% for a 6 unit right now.  My last conventional was a 4 plex at 4.6% and that was in October/November.  Rates have come up since.  

Wow at those tax #s @Bobby Thompson , $700+/month?  Assuming this is accurate per your location. A couple of things that I see are utility expenses. Are those based on historical actuals or assumptions? Seems low for a 6-plex but again might be common for your area. I also don't see lawn care / snow removal. Are tenants responsible for that?

And as @John Woodrich & @Jake Stuttgen point out, 4.3% is low for a conventional loan, but being that it is a 6 flex I'd be amazed if you can grab a conventional loan since it is >4 units. Assuming this # is commercial as last week I was quoted 3-5% on a commercial deal. 

@Jake Stuttgen @John Woodrich Thanks for taking a look and for the pointers. I was worried that those rates were low. I didn't know that residential was capped at 4. Interesting. I will reconfigure for the 4-5 range. @Jake Stuttgen Good call on the repairs. I've never thought about more than three units at a time. Need to change that mindset.

@Jay Helms Yea, Taxachusetts can be pretty high. The numbers are estimates based on actuals that I have seen in the area for smaller properties. It takes forever to get the actuals from the realtors in the area. There is no lawn but snow removal will be an issue. Thank you for your time! I really appreciate it.

I agree that you would likely need a commercial loan, last time I looked these were around 1% higher than conventional loans so your rate will likely be between 5-6% and as mentioned, you are unlikely to get a 3 year term so that will throw off your cash flow. 

If you haven't looked into financing yet I assume you are just practicing your analysis?  If this is something you are considering you hopefully have talked to a loan originator already.

@Bobby Thompson As others have said...financing...

I’d guess you’ll look at 20% down at 5% on a 20 year amortization schedule: ~$2,300 per month

You have a 30 year amortization on a 4.3% rate: ~$1722 per month

$578 per month difference or $144.5 per unit. Cash-flow goes from $199 to $54.5 per unit per month.

On the plus side, hopefully *some* of the utilities are separately metered.

On the other down side, you’ll need more than 10% to cover combined maintenance and cap-ex. Maybe not this year or next year, but eventually bills come due :)

This is why we practice and engage the community.. Learning a little more everyday. 

Thank you @Andrew Johnson

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