This is my 3rd post on BP and I'm already loving the support everyone provides.  I just sold my rental of 5-years and need to 1031 exchange into a new property ASAP.

I've dove into a couple of opportunities now and have learned a lot on how to analyze deals and look closely at cash flow.  

My latest find is a Tri-Plex built in 1979 that is currently fully occupied.  The property is located right next to a community college that attracts more 25-35 yr olds as opposed to the local party college.  I'll post my calculations below and will include notes/questions below:

PURCHASE PRICE $199,000
CLOSING COST $2,985
CASH TO CLOSE $50,496
LOAN AMOUNT $151,489
REHAB $5,000

MONTHLY RENT $3,090

EXPENSES:
MORTGAGE $836
INSURANCE $125
PROP TAX $453
PROP MANAGER (10%) $309
VACANCY (10%) $309
REPAIRS (5%) $155
MAINTENANCE $50
HOA $0
TOTAL EXPENSE $2,237

CASH FLOW / mo $854

50% Rule...$400

I build in Prop Management just to be conservative but I'm going to manage the property until I get to the 5 property mark.

Now the bad/unknown.

• Each unit has an individual furnace but they are all 25 yrs old.
• The exterior stucco needs patching & painting.
• The roof is stated to be in good condition, but I think its got to be 15 yrs old.
• I'm trying to research how this property might appreciate in value over the years.  At the very least, the cash coming in will get me started to stash money away for the next property.

1. Does this look like a good deal?

2. If I do end up putting a roof, furnaces and new paint will this increase the value enough for me to do a cash-out ReFi?

Thank you,

Trevor

You have multiple old furnaces that need replaced.  Personally I would allot the money to swap those furnaces immediately so I could avoid the headache of dealing with a down furnace a/c unit in the middle of a snow storm. 

I recommend adding an expense for capital expenditures in your estimates until you get a reserve set aside.

The real questions are... how much money do you want to cashflow? Are you happy with the cash-on-cash return? 

We all know what opinions are like, but when I'm buying I look to cashflow $200 per door after expenses.  $250 per door I would be thrilled.

Is the 1031 covering all of your down payment?

Thanks for the reply Justin.

I'm going to see the property tomorrow and will investigate the true age of the HVAC units as well as all other major components. My plan is to make an offer based on what the house needs. In a perfect world, I'd like to get the property at $180k, put $25k into it and do a Cash out ReFi to move on to the next. If the seller won't play ball, I will then need to decide whether or not this is still a good investment. I'm starting to get a grip on Cash on Cash return but still can't find a clear answer on this. Below is an example I put together. I replaced the property management (10%) w/ CapEx (10%) and ran it with the worst-case scenario that the seller will not budge on the $199,000 asking price and I need to replace three furnaces, roof etc.

PURCHASE PRICE $199,000
CLOSING COST $2,985
CASH TO CLOSE $50,496
LOAN AMOUNT $151,489
REHAB $25,000 (Furnaces, Roof, Paint, Misc.)

MONTHLY RENT $3,090

EXPENSES:
MORTGAGE $836
INSURANCE $125
PROP TAX $453
CAP EX (10%) $309
VACANCY (10%) $309
REPAIRS (5%) $155
MAINTENANCE $50
TOTAL EXPENSE $2,237

CASH FLOW / mo $854

CASH ON CASH 13.57%

Is the Cash on Cash telling me I'm making 13% on my cash investment?  If so, I love this!  Also, if you like to average $200/door this math says I'm getting $285/door unless I'm doing something wrong.

I'm starting to better understand CapEx and the need to hold money aside for major items down the road.

Well someone beat me to the punch and the seller accepted an offer earlier this evening.  

Question, Do you think it's risky listing possible deals on BP asking for help?  I don't want to go down this rabbit hole, but in the back of my mind I wonder if people might see a possibility and capitalize on it.

Hi @Trevor Miller

Working backwards. I don't think it's risky putting your deals on BP (without the address) like you did for help with Analysis. No one has any idea what market/city you're referring too. It does make it hard for us to help with the sweat equity/ARV question, but that's OK. As for this deal. Looks killer. Judging by the rents it was bringing in, seems like you were buying in a good location. These numbers with a 13% cocROI in this good of a neighborhood is a sweet deal. Something like this, run your numbers (like you did), trust your numbers (they're great), buy it!, get started on some of the work, then move onto the next one and scale. This is a tough market and a deal that good probably went for full price or over asking price in this market. That's part of what you want to consider when trying to buy something. Will your competition grab it first? How is your competition running their numbers? Most likely, it looks like it was already priced to reflect the Furnace and Roof. You ran your numbers adding in these capex/repairs, the deal was still great. So beating up seller on price, makes the seller just take a better offer, if another investor understands it was priced correctly. A "good deal" isn't reflective of % of list price - it's reflective of the ROI at the price you buy. Sometimes this is under, at, or over asking price.

This was a great experience for you. You were ready to pull the trigger so you were running the numbers as realistic as possible. Next time, do the same, and if your numbers are similar, and you've done your due diligence, buy it.

Note: In your final numbers you added the $25k for repairs so you wouldn't necessarily have to also add the additional capex to your numbers (unless there was other cap ex you are budgeting for). For these two repairs, it could be one or the other. Capex savings or rehab budget. If that makes sense. You also, could have not added the $25k for repairs but put your cap ex at say 10-15% or so, to quickly save up the money for these repairs. You'd still have a true cash on cash. If that all makes sense. A 25 year furnace and a 15 year roof, both could last you another 15 years...

As a final validation, looks like you're good with your numbers. For the next one, run them, trust them, pull the trigger. 

Good Luck!