Help w/Triplex numbers

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Help w/Triplex numbers

Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes

Hello BP world. I am crunching some numbers and wanted to throw some stuff out there to see what more seasoned investors think.  I am looking at a tri-plex.  What I have so far is this:

Asking Price $120,000

Rents = $575/$650/$500 ($1725/month), if tenants pay their own water/trash/electric/gas, otherwise I would probably increase all three by $75 and make the apartments 'all inclusive'.

Taxes & Insurance = $2600/yr (tax) + $1000/yr (insur)

The building couldn't get sold after being on the market for a while and was taken off the market and I've since contacted the owner. Hoping he'll either be willing to owner-finance to help me get in, or he'll take a lower offer price than $120.  I know this isn't a ton to go off of (I still consider myself a newbie investor), and there is more information that would help you guys make a good decision - but I'm just asking around to see if this looks like a deal even worth pursuing?  What would your ball-park offer be on this triplex?  $100K?  Less?  I know they say if you're not embarrassed, you're offering too much...

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Megan GreathousePro Member
Rental Property Investor · Saint Louis, MO · Member since 2017 · 397 posts · 469 votes
9y

I'm also pretty new to investing, but I've used the 50% rule as a guideline to see whether a property seems worth further investigation. If you're not familiar with it, the 50% rule states that about 50% of your rental income will go to expenses (taxes, insurance, vacancy, utilities, repairs, etc). So expect about $862.50 of your $1725 in rent to go to expenses. Then, deduct your mortgage payment from the remaining $862.50... assuming you get traditional financing (let's say 4.5% interest rate on a 30-year mortgage) and put 25% down ($30K if you buy at full asking price), your mortgage would be about $456. So $862.50 minus the $456 mortgage leaves you with $406.50 in cash flow every month. I personally am looking for places that cash flow $100 - $200 per door... so this is not bad in my book! And that's without any negotiation to get the price down.

But the 50% rule is just a quick way to assess, and you should definitely dig deeper into any property. Not to mention there's lots more to consider... does the property need work right now? If so, how much do you have to spend up front to make it rentable? If you do get owner financing, what will the terms be, and how will that affect your numbers? What's the neighborhood like... are renters in that area usually good/responsible renters, or would you have high vacancies in that area? Will you see decent appreciation over time? Lots to consider! Like I said, I'm new too... but the 50% rule is one way that I've been determining whether or not to dive deeper on properties. I have one SFH so far, and currently looking for a multifamily as well, so I'm learning a lot about number crunching right now as well. Best of luck. Let us know how it goes!

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  • Megan GreathousePro Member
    Rental Property Investor · Saint Louis, MO · Member since 2017 · 397 posts · 469 votes
    9y

    I'm also pretty new to investing, but I've used the 50% rule as a guideline to see whether a property seems worth further investigation. If you're not familiar with it, the 50% rule states that about 50% of your rental income will go to expenses (taxes, insurance, vacancy, utilities, repairs, etc). So expect about $862.50 of your $1725 in rent to go to expenses. Then, deduct your mortgage payment from the remaining $862.50... assuming you get traditional financing (let's say 4.5% interest rate on a 30-year mortgage) and put 25% down ($30K if you buy at full asking price), your mortgage would be about $456. So $862.50 minus the $456 mortgage leaves you with $406.50 in cash flow every month. I personally am looking for places that cash flow $100 - $200 per door... so this is not bad in my book! And that's without any negotiation to get the price down.

    But the 50% rule is just a quick way to assess, and you should definitely dig deeper into any property. Not to mention there's lots more to consider... does the property need work right now? If so, how much do you have to spend up front to make it rentable? If you do get owner financing, what will the terms be, and how will that affect your numbers? What's the neighborhood like... are renters in that area usually good/responsible renters, or would you have high vacancies in that area? Will you see decent appreciation over time? Lots to consider! Like I said, I'm new too... but the 50% rule is one way that I've been determining whether or not to dive deeper on properties. I have one SFH so far, and currently looking for a multifamily as well, so I'm learning a lot about number crunching right now as well. Best of luck. Let us know how it goes!

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  • Eugene Beard
    Snellville, GA · Member since 2014 · 110 posts · 30 votes
    9y

    Hey @Chris Jackson 

    From the numbers your giving here I made a quick calualtion pdf for you. See below

    But you are missing a few things. Specifically the repairs needed to the home and Capital expenditures (which I included in my calcualtions and estimated at 10%). all things considered it looks like a pretty good deal to me. Make sure remeber taxes usually go up from what they have listed in their taxes last year.

    Also double check your market rents using rentometer.com to make sure you would have market rents for your bedroom/bath level. Your 3 rental prices seems scattered. usually a triplex has all the same bed/bath at 2/1 or 2/2 so Im thinking you could get all the same rents if u updated the 2 slacking units to the premium one. Just a thought.

    If you have any questions let me know.

    Happy Hunting!

    https://www.biggerpockets.com/calculators/shared/1...

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  • Peter MorrisseyPro Member
    Rental Property Investor · Syracuse, NY · Member since 2016 · 66 posts · 11 votes
    9y

    I would add a few suggestions.

    The best way to analyze this is to use the Biggerpockets analyzer, or develop a spreadsheet that does this. Depending on your goals you will want to look closely at cash on cash and cap rate as well as net profit per unit.

    Along with rentometer, I would also look at craigslist, Trulia and Zillow. Look at rental prices in similar properties near this property and pay attention to the condition of the properties in the pictures. Renotmeter can be skewed by single family homes unless you pay for it.

    Pete

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  • Chris Jackson
    OP
    Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
    9y

    @Megan Greathouse - thanks for crunching those numbers and reminding me of the 50% rule. I forgot all about that, but I remember hearing about it as a good starting point.  I don't have $30K to put into this property (again, assuming I pay full price), so my monthly income would be a bit lower than what you estimated - of course I hadn't said that initially so you obviously didn't know.  PS - what a great last name for a real estate investor!!

    @Eugene Beard - I appreciate your feedback! Thanks so much for running things through the BPcalculator and adding in CapEx also. I am eager to see how that all pans out. Like I said to Megan, you probably have me down as paying 20% down, but I just don't have that in savings right now, so we'll have to see about owner financing I guess... unless I can get a partner involved or something. The triplex has a 2/1, a 1/1 and an efficiency. That's why those rents are a bit different.

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  • Eugene Beard
    Snellville, GA · Member since 2014 · 110 posts · 30 votes
    9y

    @Chris Jackson

    Is this your first home? or primary home? FHA loan is always an option as that is 3.5% down. I went through a program called NACA that will have no downpayment or closing costs but you have to live in the home. It depends on your situation honestly. If your single and renting I would go with NACA possibly or FHA(faster) . If you have your own home and dont have 20%I would see what govt programs (grants) may help pay for part or full of your downpayment(they have those in GA) but you have to have something. Even if you do owner financing you will have to bring money to the table 90% of the time for closing costs or for unforeseen repairs or even before closing for appraisals.I had about 10K when I ought my duplex so I understand about not having 20% down. I glad I went thorugh a program that didnt use all of my money becuase I needed a saftely net because things Happen!.

    Your best bet is owner financing with good terms that gives you some time to make the first payments but maybeitsa higher purchasing price. that may benefit you the best. I havent been able to get ownerfiniancing in this market so to that I will say have a backup plan and good luck!

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  • Chris Jackson
    OP
    Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
    9y

    @Eugene Beard - I have some small change - enough to get me through appraisals and stuff like that - just not enough for a 20% down deposit.  I might try to get some money from my younger brother, perhaps, and make him a silent partner in the deal.  But my first attack I think is going to be owner financing.  Of course I still need to see this place and what condition it's in and all that good stuff.  I'm just glad you and @Megan Greathouse were willing to crunch some numbers with me to help get the ball rolling to see if this was even worth pursuing or not.  And to your other questions/comments - I just bought a personal residence so I wouldn't be living in this one. I am a hubby and father of 3.  So this little thing just wouldn't work for me!  haha.

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  • Megan GreathousePro Member
    Rental Property Investor · Saint Louis, MO · Member since 2017 · 397 posts · 469 votes
    9y

    @Chris Jackson - Thanks much! I like the name, too. :)

    Totally understand the cash situation. If you can negotiate the price down and get owner financing with little to no down payment, could still be a good deal. I agree with other comments about using the BiggerPockets calculators. And remember - garbage in, garbage out... the calculators only work if you do your due diligence to make sure the numbers you put in are good. Good luck!

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  • Chris Jackson
    OP
    Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
    9y

    Does anybody who has commented on this thread know if the 50% rule applies for commercial (14-units) properties as well? 

    0Reply
  • Mike Snyder
    Seminole, FL · Member since 2017 · 86 posts · 39 votes
    9y

    @Eugene Beard I just found this thread and tried to look at your analysis but the link expired. Do you still have it anywhere or do they just roll off from BP after time?

    @Chris Jackson did you every get an answer to the 50% rule for commercial? Curious myself.

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  • Chris Jackson
    OP
    Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
    9y

    @Mike Snyder No, no answer. I imagine it applies to a point, but with the economies of scale, the larger you get the less applicable it will be. I imagine it probably also depends on what sort of commercial property you're talking about. I was thinking apartment buildings, but if you've got a mixed use; maybe something with a NNN lease involved for example, the 50% rule would apply less also.

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  • Eugene Beard
    Snellville, GA · Member since 2014 · 110 posts · 30 votes
    9y

    @Mike Snyder  here is the link again. If you have any issues let me know.

    https://www.biggerpockets.com/calculators/shared/198301/dfa6541b-ab47-4f11-bd50-cf838bbb86a0

    0Reply
  • John Watson
    Specialist · Loganville, GA · Member since 2017 · 17 posts · 3 votes
    9y

    @Chris Jackson, how did the deal turn out? I know this post is old, but I am looking at a similar situation with a 3 plex that are all 2/1, generating gross rents of $1350 and the owner is asking $95k. I'm looking to do owner financing as well and wanted to know if you were able to close the deal and if so, what advice would you have for me? Thanks

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