All Forum Posts by: Julian Hendrix

@Julian Hendrix, Here is a AI take on your deal as you lay it out. As you will notice it confirms some of the observations from @Jaron Walling. You should be double sanguine about your assumptions regarding upside potentials before getting into this deal.

🔹 Step 1: Deal Structure (as I understand it)

• Purchase price (effectively):
  $10,000 down + ($1,600 × 30 mo = $48,000) + ($200 × 60 mo = $12,000) = $70,000 total
• Monthly outflow (including taxes + utilities): ≈$2,050–$2,200
• Current rent roll: $550 + $475 + $400 + $300 = $1,725/month
• Value estimate: $60k–$70k per CMA (pending confirmation)

🔹 Step 2: Current Operating Snapshot

• Gross Rent = $1,725/month = $20,700/year
• Expenses (per seller estimate) = $2,050–$2,200/month = $24,600–$26,400/year
• Net Operating Income (NOI) = –$3,900 to –$5,700 per year (negative cash flow today).

So as-is, you’d be losing money each month.

🔹 Step 3: Upside Potential — Raising Rents

Rents are well under market (you said). Let's assume "fair market" is maybe $700–$800 per unit (you'll want to confirm with your realtor's CMA and rent comps).

• If each unit could get $750/month, that’s $3,000/month gross rents.
• Annual Rent = $36,000
• Expenses ≈ $25,000/year → NOI ≈ $11,000
• On a $70k all-in cost → ~16% cap rate

That’s very strong — but only if you can actually raise rents.

🔹 Step 4: Key Risks

1. Tenant Turnover – These tenants are long-term (5–20 years). If you raise rents significantly, you risk vacancies and make-ready costs.
2. Condition of Property – At $60–70k for 4 units, the building may need deferred maintenance. Hidden repairs could eat returns.
3. All-in Monthly Burden – You’re locked into $1,600/mo payments + expenses, which already exceeds current rents. That’s negative cash flow unless/until you raise rents.
4. Seller Financing Terms – $1,600 × 30 months = $48k — that’s equivalent to a short-term balloon at high monthly cost, not like a 30-year amortization. Make sure you’re not overpaying on a “lease-option” style deal.

🔹 Step 5: Quick Math on Scenarios

✅ Bottom Line

• As-is → deal loses money every month.
• If rents can be raised to market ($600–750+ per unit) → deal could become very profitable.
• But to get there, you’d likely need to turn over some tenants, renovate, and risk vacancies.
• The financing terms ($1,600/mo for 30 months) are aggressive — you’re effectively paying the seller quickly, which creates upfront negative cash flow risk.

📌 My advice:

• Get those CMAs and rent comps confirmed.
• Have an inspector walk the property — don’t assume long-term tenants = well-maintained.
• Negotiate seller terms — maybe lower the monthly to cover expenses until rents are raised.

 That's great you have experience with tenants and evictions! Regards I will not negatively cash-flow to hold properties. It's an unwritten rule for most rental investors. These units seem like a CF strategy with with low appreciation; positive CF of $1500 per month after 2 years sounds great on paper, but you can't guarantee it. 

You haven't discussed the condition of the property, repairs, and future capex. It's probably a reason these units are cheaper and rents haven't been raised. The current owner couldn't justify the increases, didn't care, or just wants out. Most likely stuff needs repaired. Who's paying for that? The answer is you until the CF catches up and tenants start paying for it. 

@Julian Hendrix How much experience do you have with REI?

"all four units are being rented under market $550, $475 $400 $300 total $1725" - These units are incredibly cheap like C- or D class cheap? Rising rents is going to stir the pot. They haven't raised rents for a reason. Without experience that's a PM nightmare waiting to happen. 

"Waiting on the CMAs from the realtor but I was told both places are worth 60-70k for the area." - No offense here but this is not expense RE. The offer price for those units is almost our rehab budget for a distressed SFH in our market. You're talking about loosing $25-150 per month. You need to see positive CF of $150 per right out the gate. There's little to no upside here. 

Unless the market has a secret weapon in the pipeline, good signs of future appreciation, infrastructure improvement, city projects, etc. - No I'm not buying these properties.