First deal offer accepted: good or bad deal?

Question

Hi all, it looks like I'm buying my first investment property.  A 4 unit property 100 miles south of NYC for $310K. Property is in very good shape and fully rented with leases in place. Well managed by current mgmt company, which I intend to keep for 10% of rent roll.

Income is about $3100 monthly, a 1% deal, or $37K annually. Expenses are in the 50% rule, and including mortgage, vacancy, and rest of calculator expenses including property mgmt I would be clearing about $350 a month.

With a downpayment at about $60K we are looking at a 6-7% Cash-on-Cash return.

Area is ok, not growing like crazy but not going south either...growth probably more on the touristic side than on the employment and population side.

I know this will be my next level RE education, but regardless of that, how good/bad is this deal?

Finally, as this is a pure investment property and not a house hack, lenders consider it a pure commercial play and all but one ask for 25% down and 5%+ rates...any thoughts on this?

Thanks all for any advice!

Nic

Nicolas P. · Answer

Thanks Chimpo.

Changing the question then, what would make this a good deal? e.g. at what price or with how much aside for repairs etc.

And also, how could I find local financing options using bigger pockets? not hard money just traditional lenders, but not sure how to search. Thanks!

Nicolas P. · Answer

Thanks Joe. I have separated a 5% vacancy cost or $1500 before getting to the numbers I posted.  The $4200 already accounts for a $1500 vacancy expense. I think I calculated everything fairly conservatively. Calculation also includes a 10%, or $3,700 property management cost. Property is fully occupied with new leases. It's a newer property vs. most in the area so tenants apparently prefer it for that reason. Main issue now is financing cost. I didn't know this would qualify as commercial and rates are in the 5.5% range...Thanks!

Joe Villeneuve · Answer

Yikes!!!  If I read that correctly, you're getting what amounts to less than $100/month per door.  Also, at 6% CoCR, if that stayed your cash return per year, that would mean it would take you almost 17 years before you broke even...as in, making a profit.  That's assuming all goes well.

Using the important numbers, you know, the ones with "$$$" in front...not "%" behind, this is what is actually happening:

1 - $350/month income (cash)2 - $4200/year income (cash)3 - Unknown retention (in $$$$) towards vacancy, etc...4 - Unknown impact over 5 year period from #2 offsetting #3.5 - Most likely scenario - #2 doesn't cover #36 - ...and,?????