Asbury Park NJ Multi-Unit - Good Deal?

Question

Hi, I have been going at the rental game for a while accumulating 15 individual units 1x1. I want to branch into a multi-family unit. It seems that all the multi-family units I look at have lower cap rates and lower cash flow amounts then I could find individually. Here are the #'s:

The broker says they want 8-9M for the 16 units. The total expenses with mortgage, insurance, maintenance, taxes, .etc are at $47K a month. I included the cost of the debt coverage for the down payment which I would have to pay interest on the line I would use for the funds. The current income the building is producing is at $44K. It is a negative cash flow on paper. The cap rate is at about 5.5%. They have a management expense listed at $1K a month which I could self manage. Even if I raised rents and all went well with no maintenance expense I would be breaking even at best.

Is this an appreciation play? It is tough to value if the $8M ask is comparable to anything else. How would you guys go about this?

Taylor L. · Answer

If it doesn't cash flow on paper, don't do it! It's very likely that in reality it'll cash flow even worse at times and bleed you dry. You may be competing with cash-rich buyers who are taking less leverage and care more about capital preservation than earning a decent return.

What rate are you paying on that debt? If it's more than 5.5%, it'll be hard to cash flow in the long run.