I haven't physically looked at this property yet (I've seen pics of the outside), and am waiting on the expense/income report from the owner. But here's what I have right now....
Asking price: $49,000
monthly gross income: $1050
needs new shingles
owner says the building needs "updating" (the outside looks fine to me).
rents are currently 20% below market
tennants pay all utilities except water and sewer
building has electric baseboard heat
tennants currently have free washer/dryer use (this would change quickly if I purchased, and would provide increased income)
I know the first thing I have to do is determine how much updating needs to be done. All units are currently rented. I will update with more detailed numbers soon, regarding expenses. This is 2.5 hours away from me, so I would have to get a property manager. :badwords:
Disclaimer: I am new to this and am responding mainly to see if MikeOH or others tell me I'm missing something in my calculation. So, please, do not go off my analysis...
Based on the numbers you quote, it looks like a good -- but not amazing -- deal. You have expected cash flow of under $50/unit-month. If you raised rent 20%, I think you'd be hovering over the $50/unit-month mark.
Basing this on:
Mortgage payment: $350/month
Margin: $175/month or $44/unit-month
If I were looking for my first deal and I came across this deal, I would probably take it. There seems to be enough room to make some mistakes and still not be in high risk of getting into trouble.
Then again, if you are having a PM company handle the property, there will be a limit to the experience you'll gain from this deal.
Just brainstorming, but if the numbers you give are true, a few thoughts come to mind.
First, it looks like the rent is about $250/per unit. Even if that's 20% below market, you are talking about a place that will ultimately rent for around $300. Is it a total dump or are rents really that low out where you are? Even the biggest dump around here would get $450, and that wouldn't include water. OK, so none of that's helpful, it just makes me think that you're going to be working very hard (or paying your property manager top dollar) for every penny you get out of the place.
Second, why not think about rehabbing/reselling? If comps really are $100-110K, and let's say you can get it for $45K, well that still leaves you room to "update," get the rents up to market, maybe individually meter the water, and then sell for full value. It would all depend upon how much work needs to be done, but if your comp numbers are true, you could put $25K into it and still be at less than 70% ARV total investment.