[Calc Review] First Investment Mulitfamily Purchase

[Calc Review] First Investment Mulitfamily Purchase

Rental Property Investor · Walnut Creek, CA · Member since 2018 · 5 posts · 3 votes

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*This link comes directly from our calculators, based on information input by the member who posted.

This is my second post on the site and first after upgrading to pro. I've only used the rental calculator 5 times and have a basic knowledge of most of the terms contained therein. OK, cut to the chase. This deal meets all of the metrics that I've come across in evaluating potential properties after my 1 week of investment education. I simply refuse to believe that since 99% of properties are not going to work, that I found a 1%er in my first 5 go's. I realize that there could be a number of details absent from the listing that could tarnish this deal's luster. "As-is" verbiage from the listing leads me to believe that some type of repairs would need to be accomplished though there are current tenants with rental agreements that extend for another year. My $10k estimate for repairs is not based on anything at the moment. The absence of actual square footage makes it difficult to check to see if the rental prices listed are accurate. I'm also not sure what the listing means when it says the property is "zoned as a triplex". If it were not, would that mean additional fees for having it zoned as such? Aside from some of these issues is there anything in the numbers that doesn't look right?

Also unrelated: is there any way to account for high vs. low turnover rates in the calculator? In other words accounting for the increased cost of advertising during a vacancy or do you just have to manually inflate the property management fees?

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  • Sandwich, MA · Member since 2018 · 103 posts · 57 votes
    8y

    @Mark McNaughton First things first throw up a profile picture so people feel more comfortable and willing to give advice. 

    Over all it seems like a good deal if the 10k worth of repairs hold true. Personally I would subtract the amount of expected repairs from the ARV to get an offer and even then I would offer less to see what the seller says. Just know that since your loan will be so close to the ARV amount you will not be able to refinance that 30k down payment out unit the property increases in value (market or forced equity).

    My biggest question is about the %5 management fee. If that is the rate you received from a management company then I would steer away, but if you are self managing the property and want to put a value of $100 a month then that is a good call. 

    Good luck! 

  • Rental Property Investor · Walnut Creek, CA · Member since 2018 · 5 posts · 3 votes
    8y

    Thank you for the advice, Alex.  As far as the profile picture goes I completely agree, but I have tried multiple times with no success.  I have seen the same issue posted multiple times on this site, and am confident it is not a problem on my end.  I’m going to try to tackle it with a different browser but when I tried last night, the site said it was under maintenance.  The sale price I posted was the asking price purely to show that at the asking price it still seemed like a good deal, I would be interested in making an offer for less.  I actually am currently using a management company that charges $100 as a flat rate.  I am not that pleased with the service I’m receiving and will be looking at other options soon.

  • Sandwich, MA · Member since 2018 · 103 posts · 57 votes
    8y

    @Mark McNaughton yea a $100 flat fee for a 3plex sounds like a situation where you would be unhappy with the results. I would assume a 10% of the gross rent for that expense. 

    As for the turnover rate you are obviously putting aside cash for the months that you are not receiving rental income, and if you find a management company worth working with they will have a tenant replacement fee (mine is $500 per unit). If you expect to have each unit turn over every 12 months then you can expect to pay that $500 every year per unit.  If you are planning on doing the work yourself you will need to figure out how much you are planning on spending on marketing, background check, showing the property etc. Say you decided to pay the $500 per tenant turnover (might be different in your market), you would just simple multiple 500 by the number of units (3 in your example) and take the $1500 and divide it among 12 months. If you want to account for those expected cost just put the $125 ($500 x 3 / 12)  in the "other expense" spot on the calculator. 

  • Rental Property Investor · Walnut Creek, CA · Member since 2018 · 5 posts · 3 votes
    8y

    @Alexander Wardell.  I did look into the rates charged by the property management company I am familiar with and it is actually $100/mo for the first property unit and $75/unit after that so with the triplex be looking at $225/mo I think which certainly does impact the calculations a lot.  The calculations for cost of replacing a tenant in each unit each year makes sense and I suppose is a conservative line to take.  Thank you for the advice.

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