Looking to confirm my analysis

12 Replies

Hi all -- looking at a 4-unit property in Glenolden PA. I think its priced too high, so my numbers below work at the price I wish to offer. Let me know your thoughts:

Purchase Price:  $250,000

25% Down Payment

Units - Four (4) total:  4 bdrm, 2 bdrm, 1 bdrm, 1 bdrm


TOTAL MONTHLY INCOME $3500

Mortgage Payment: $1021 month

Insurance:  $130 per month

Taxes:  $408 per month

Heating/Utilities:  $218 per month, water and heat. Higher in the winter but averaging this cost out.

Property Management (10%):  $350 per month

CAPEX (10%): $350 per month

Vacancy (8%):  $280 per month

Maintenance (8%): $280 per month

TOTAL EXPENDITURES:  $3,039 per month


Final Numbers:
Cash Flow:  $461 per month

COCR: 7.41%

Cap Rate:  16.80

Curious to know your thoughts -- isn't the best deal in the world, but I haven't seen much better out there. Neighborhood is C+/B-.

@Joe Papp

What is the ARV value of the property? As long as the numbers look good and you can afford it it's not a bad deal. You can find deals with better COCR and CAP rates, and have worse cash flow, higher vacancy rates etc. It is all dependent on what you feel is a good deal for your situation. If your going after net worth how does this amortize out or is this solely for the cash flow.

Howdy @Joe Papp

From what you presented it looks worth doing more in-depth analysis/research on.

I would want to know what the Market Value/ARV is for similar properties. What is asking price?

Also what is the age and current condition of the property.  Any deferred maintenance/Rehab needed?

Are current rents at market rates?  Is there room to increase?

It will not hurt to put in an offer.  All they can say is no.   Or Yes!

You also need to take into consideration the amount of your cash flow that you are buying with your own cash (DP). Based on your DB this property does not have sufficient cash flow. You can do better.

Hi @Chris P. I am not flipping or rehabbing the property so I wouldn't know the ARV; I suspect max is 300,000 given the area. The property is fully rented so I am buying for cash flow, not for appreciation. In my mind I think cash flow is king, and appreciation or future repair value is icing. The goal is to get it, start gaining cash flow and any appreciation right back into the business for the next property, the next property, etc.

Hi @John Leavelle as I mentioned above I'm not flipping or rehabbing. The ask is 289,900. The current owner paid 327,000 for the property in 2008 at the height of the market, it would seem. I think 250,000 is fair given the condition and time on market. Comps are tough because its a 4-unit property, but I see a property sold for 302,000 nearby with about $300 less cash flow per month. A 3-unit sold for 137,000 but the cash flow isn't comparable. A 5-unit is currently for sale for 329,000 and only makes about $200 more cash flow per month. Comps are odd and I bet if you ran them in 2008 for this property it would have seemed like a good deal then, too. I'm looking at this purely from a cash flow perspective, I hit 7.5%, maybe better with my (what I think are conservative) numbers. But the property would certainly need work in the next few years as the condition is C+. Rent is about market, largest/most cash flowing property is section 8.

@Thomas S. what would you be looking for? I thought 8-12% is about the sweet spot.

@Joe Papp I would hold out for a better cash flowing deal. I aim for $350-$400 per door/unit minimum.

also this assume 100% occupancy and/or economic occupancy. However, if one unit is vacant or the tenant doesn't pay you may go negative for a month.

@Joe Papp

Ok, I understand you are not flipping or desire to Rehab. But that is why knowing the current condition is so important. If the property has some big ticket deferred maintenance coming within a year or two your Cash Flow may be wiped out in one shot. You are planning to withhold a sufficient amount ($350) for CapEx. You still need to have a good idea of when those items need to be replaced/repaired. Have the property inspected during due diligence to determine the current condition of all major components and appliances. That way you know what needs to be replaced/repaired up front and what can be deferred.

Even though you are only interested in "Cash Flow " it is still a good idea to establish an ARV so you don't end up over paying like the current owner. In this case you did do some research on it.

If I'm analyzing a standard Buy and Hold with minimum repairs I want a minimum of $100 per unit cash flow and 12% CCR. However, I primarily use the BRRRR strategy so CCR is through the roof.

Originally posted by @Ibn Abney :

@Joe Papp I would hold out for a better cash flowing deal. I aim for $350-$400 per door/unit minimum.

also this assume 100% occupancy and/or economic occupancy. However, if one unit is vacant or the tenant doesn't pay you may go negative for a month.

Per door?! Where can I find those deals?

@Joe Papp   Lol, I am in Chicago and on the northside (nicer area compared to higher cash flow/higher crime areas). I only own SFRs right now, but the lowest I get is $385/month. That's on a condo i own. 

Alot of folks get caught up in the % game (which is important to a degree), but I always shoot for a $ return. Anything less than $300/unit/door is not worth the time IMO. preferrably $400. Folks I know who BRRRR or rehab to buy/hold get $500-$700/door

So many things can go wrong with $100/door MAX profit. 

@Joe Papp

Is there a way to increase cash flow through rents? A one or two month vacancy could kill your cash flow. Can the current tenants take over paying utilities by installing separate meters? I feel only getting $100 per door might not be worth it to you in the long run. Check how dated are all the big capex items like the roof, plumbing, etc.

Best,

Steve

Hi Joe, I invest in the area and think you can do better. I do SFR's like @Ibn Abney and get $300-400 per property. For whatever reason, I am having a hard time finding multi-units that can cash flow the same way my single families do. I put considerable renovation in and buy them distressed usually but I don't see why you couldn't get $150-200 per door cash flow on a turn key property in this area. 

The other thing I do is throw out stupid offers to see if they stick. On this property I would probably offer $230k and see if it stuck. If there was any interest I would negotiate from there. If not I might come up a little and see if they take that but then walk. Not worth getting into a bad deal to make the negotiation easy. 

@Ibn Abney , @Steven McCutcheon , and @Rich O'Neill I appreciate you guys weighing in! I've been only looking at MFR so I may look around. I agree with Ibn that $100 per door may not be enough long term. Steven, I think one of the biggest expenses is oil heat and water on this property. I don't know the split of these but its $2600 per year, so that's a significant expense. I would consider market rents to be in line with this property, so there probably isn't a lot of room. I've yet to inspect so I don't know CAPEX yet, but we shall see. I agree with you Rich on the "stupid offer" idea - honestly there is no harm coming in super low to see if it sticks. The property is for sale for 289,900 and I was thinking of offering 250,000, as the 289,900 price simply doesn't add up for the numbers.

NOI is 18k. This doesn't sound like a class a or B+ building. If rents are at market rent a 225k offer is an 8% cap. Maybe you can negotiate prop managment down to 8%. But if you cannot add value somehow I would advice against buying the property for anything over 225k.

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