How many of you would do this deal?

Question

Two triplexes. 2/1 with storage and w/d hook ups. New roofs, new AC's, new windows, New tile flooring in all units. Property is in great shape. Current rents are mixed totaling 3500. With in a year i can take rents to 4200.

Jim Goebel · Answer

@Christopher Derr

Hey Chris I'm not really a 'numbers only' kind of person in deal analysis.  Qualitatively, I've seen enough houses here in the Des Moines market that were apartment style (I call them haunted houses).  Haunted houses because they were split up into multiple units from multiple angles - and no doubt there are some of those that are operating and producing income for people, but the end result is that there's a lot of them out there where an owner walked away, they failed etc.  Perhaps the owner pulled the money out into different directions but the end result is a dumpy place that doesn't have anywhere to go.

That's an asset class at the end of its lifecycle.  In some cases those houses need to be knocked down.  In others, they may be a good convert back to a SFH.  The deal that @Bobby Beard presented to me reeks of the type of thing that may be this same asset class just earlier in its lifecycle, before eventually becoming the dumpy non appreciating time suck that it might end up being. There's been a few multi unit type deals like that where we've passed on now that to some may have looked good on paper but my view is that they don't really get us where we want to be going.

On the numbers though, we have been spoiled but look for 20% + type of returns on everything.  Most of the 'ready to rent' multi units available where they are market priced and supposedly cash flowing in the 8-14% range I see as a way to race to the bottom of a barrel.  Put another way, if deep pockets were able to just buy these without adding/building any value, then frankly that kind of de-values the dollar.

Bobby Beard · Answer

The biggest issue is i would never be able to really afford a PM. A PM would eat the cash flow. Not worth the headache for a 20 year cash out. I was think 350 was fair. 340 would be better. They received an offer the same day i looked at it. I did the emotional thing and offered 360.. 360 would have worked but not been great. They responded with 370.. i haven’t responded. Somebody else can have it. Moving on to better deals!

Jim Goebel · Answer

also return on investment is one thing but return on time is another -

sounds like a possible low return on time depending on what type of renter and turnover you are anticipating there

Joe Villeneuve · Answer

All cash, financed, ...?

Bobby Beard · Answer

Yes they are metered separately. Rance style triplexes in perfect shape.

Christopher Derr · Answer

I see what your saying... I am sitting here thinking in florida its not a old Victorian turned triplex.  In my head i assumed ranch style triplex separate drive etc.   I still wont buy up down duplexes.

@bobby in those properties is everything metered separately?

Christopher Derr · Answer

I see what your saying... I am sitting here thinking in florida its not a old Victorian turned triplex.  In my head i assumed ranch style triplex separate drive etc.   I still wont buy up down duplexes.

@bobby in those properties is everything metered separately?

Christopher Derr · Answer

Seems like $200/door and 19% or so COC.   Looks good to me if it has all new maintenance.  Property management or self manage? Will determine a lot for return on time.What kind of price would you want to see @Jim Goebel to make it work?  I am fairly new in the game but I am interested in seeing how others fair.  Des Moines and most metro's are so much different than north central Iowa.  $700-800 is a pretty decent SFH rental up here.  You're low end rentals with bad renters are usually $400-550 ish and most end up in multi-family.  I know in Des Moines $800 puts you probably somewhere you probably don't want to be.

Thomas S. · Answer

With present rents at $3500, which is the only number that matters, it is over priced at $370K.  When a investor does not maintain rent at market or allows maintenance to hold rents down they are devaluing their investment. As a result buyers should only pay based on existing rental income.

I would only buy if the positive cash flow with rent at $3500 was $200/door.

Bobby Beard · Answer

I would say the area is steady. Middle of the road with not much growth expected.

How many of you would do this deal?

Most Popular Reply