Help me analyze this out-of-state deal!

5 Replies

This is my first deal.  It's a package deal that includes a duplex and a tri-plex, 5 units total. It's  out-of-state  but  it's an area I'm familiar with. 

Management is a must. Thank you in advance!!

@Aaron Chittum Glad to assist but this is a big ask...we can all comment on the figures you use across the board, but its all relative to your market and preferences. Is this a single transaction...why do you have 2-sets of figures?

What market are you in?

@Brandon Sturgill ,  thank you for your response! 

I apologize, in my head it made sense, but I didn't do a very good job breaking it down.

This is a single transaction, package deal. I have the option to buy one or both and I was considering buying both. I have the two sets of figures because I'm analyzing this deal based on both the properties and their individual performance. I guess I was looking for a general opinion on how the numbers look and if I have things in the ballpark as far as cap rate and ROI.

These properties are located in South Dakota.  I'm in Minnesota. 

Thanks again for taking the time!  Hopefully this explains a little.  This will be my first deal if I decide to move forward with it.  I've been lurking here for almost 3 years!

@Aaron Chittum Generally, yes...if your assumptions are correct for your market...judging by the purchase price, I would assume these are C-class or lower...so lots of deferred maintenance, needed upgrades, lower class tenants...possibly under market rents...or the need to stabilize through eviction...this is just an assumption and it's relative...my recommendation is always anticipate a cash outlay up front to stabilize properties and force appreciation and drive rents...then place it on cruise control...no need for property management and save 10% of your income....no maintenance costs or CapEx surprises either...

Your ROI on these is pretty big...you could pay these off in less than 5-yrs if you accelerate debt paydown and cash flow very nicely...

Most conventional lenders won't originate a loan under $50k...so purchasing individual may not work...and assuming CAP rate on anything with less than 5 units is pointless...while some appraisers may use income approach in tough situations...or even GRM...your value is based on comparable sales. Period.

You'd have more luck acquiring these as a package...more appealing to a lender anyway...

Brandon, you freaking rock.  Thank you.

Yes, C class established neighborhood. I'd love to not use a management company, but I live 3+ hours away.  I don't have the systems in place nor the experience to handle everything as a newb.  I recognize this and am trying to build that into my budget.  

I want to pay down the loan as quickly as possible with remaining cash flow then purchase more or upgrade.  I did set aside cash for upfront costs for these properties.  Everything past my reserves will go into capex on deferred maintenance.  

Again, you're awesome and I REALLY appreciate your take on this!