Multifam under contract - deal or no deal?

Question

I have a 290~300k triplex in Westerly RI tied up under contract for 242k. Seller willing to finance 33k. Currently fully occupied (but filthy) with yearly rents of 24k. Could be cleaned up and rented 30k a year I estimate. All utilities paid by tenants. Taxes 3k, Insurance about 1200. Seller did roof, windows and siding recently.

Working with private money for 180k and the rest will be cash.

It seems a bit tight (prob negative) on the monthly and considering not doing the deal. However a refi will make it cash flow about $500 I estimate.

Thoughts?

Ryan A. · Answer

Sorry - the 180k private is interest only for about a year max. 33k seller finance is amortized for 5 years max.

I was estimating that after a refi for the 180k + 33k (213k) plus taxes and insurance and maintenance, the monthly flow would be around 450 - 500. Thats using current rents.

Hopefully within the year using the private funds, the rents could be increased and flow would be even better. But I wasn't going for speculation.

Ryan A. · Answer

Ok. Next.

Thanks guys

J Scott · Answer

Using the 50% rule as a first approximation of the deal, if you can get gross rents to $30K/year, that's about $15K NOI.

If you could finance 30 years at 7% fixed with 100% LTV, you would break-even if you paid about $188K.

If you get a loan for $180K under the same terms, you'll cash flow about $600/year, or about $17/unit/month.

If you want $100/unit/month in cash flow, your debt service can't exceed $143K.

Not sure where you're getting the $500 cash flow...is that supposed to be per-month or per-year?

J Scott · Answer

So, that's $1420/month in debt service on NOI of $1250/month.

You have negative cash flow of $170/month...

Mike McKinzie · Answer

As J Scott pointed out, the deal is just too tight.  Vacancy, a major repair, etc... would throw any profit down the drain.  Multi unit's need to bring the cash flow and this one will not.