Do these income/expense numbers work for this 3 unit multifamily?

Question

3 unit multi-family. Appraisal value 90k, selling price 70k. 15 year mortgage at 4.5%. Down payment 20% or 14k. Annual mortgage cost $6300.

Rents:

2 bed $600/mo tenant pays electric and heat

1 bed $550/mo tenant pays electric

1 bed efficiency $400/mo tenant pays electric and heat

Annual income $18600

Expenses:

Heat $850

Trash $300

Water/Sewer $1100

Taxes $1900

Insurance $700

Mortgage $6300

Total expenses before repairs/vacancy = $10850

End of year profit would be $7750. Lets take potential vacancy and repairs into consideration.. that would leave me with lets say $5000. Would this be a decent number to make it worthwhile on this property? A big chunk of expenses are coming from my mortgage which I would shoot to pay off the loan asap from other sources of income but disregarding that factor, I am curious if that is a worthwhile number on a 3 unit building. Thanks!

Andrew Michaud · Answer

@Thomas S. Thank you for the info. I guess I don't understand what yoy are talking about with equity and paying off the loan creates a liability issue. Also, rents are at their market rates, and tenants do have most of the bill. I am paying heat on one out of 3 units. As far as the 30 year mortgage, I didn't know that was possible on a commercial loan for a 3 unit.

Thomas S. · Answer

Go for a 30 year mortgage, you do not want to pay off a rental as the opportunity value of the equity will kill your cash flow and turn the property itself into a liability. Once the property is paid off the equity will be valued at $866 (10%)/100K/month which will make the property a major liability.

Your expenses are far too low/missing making this a negative cash flow property. Are the rents at market value, if not, push them up to market. You should also try to dump your portion of heat, trash and water/sewer back on the tenants.

If these options are not possible then your cash flow will likely be negative.

30 year mortgage, raise rents, transfer expenses to tenants.