newbie looking for triplex deal analysis

[Conrad Erb]

hi there.

I'm a first time poster and I'm looking for some feedback on a potential deal here on a triplex in the Philadelphia PA area.

This is my first foray into real estate investing, and I would like to know what I'm missing here and if there are any red flags.

(Why I'm buying a triplex - The idea is that in the first year, I would live in one of the units, and after one year, I would move out and rent all three units, so that I get the low owner-occupied rate the whole time. Yes, I checked with my lender about this.)

here are the numbers:

purchase price + closing costs is roughly 185k.
annual net rent is $24,500 (taking into account 7% nonoccupancy)

expenses: total $5k

taxes: $1500/annum (this is from the assessment)
maintenance: estimated $1850 a year (1% of the purchase price per year)
insurance: estimated at $1300
water and trash bill: estimated $1400

net operating income = $24k-$5k = $19k

debt servicing on 4.5%, 30 year fixed mortgage balance of $166k = $841 per month, and $10k yearly

cash flow = $19k (NOI) - $10k (debt servicing) = $9k per year cash flow

cash-on-cash return = cash flow of $9k/downpayment of $18.5k = approximately 53%

first year equity is $2200, so that's another 12% on my $18.5k downpayment, making the total ROI after the first year 65%!

this isn't taking into account possible appreciation and tax benefits.

So - these numbers look fairly healthy. Any thoughts? What am I missing here? of course, I'm not paying a property manager...I am the property manager for the first while :-)

about the property - a semi-detached home with three separate units. property looks to be in good condition, recently rehabbed, and in a neighborhood that is slowly gentrifying.

I would love to hear some feedback. I own my own business and have operated profitably for a few years, so I'm not a total idiot when it comes to how to be profitable and manage basic business operations, but real estate is both scary and exciting.

thanks!
youngreinvestor
philadelphia pa

[Will Barnard]

First off, on a triplex, I doubt you could get 4.5% as that woudl be BEST case scenario, so count on it being a bit higher and also factor in the costs of the loan (points, appraisal, etc)
As far as your estimation of expenses, you left out quite a bit of items such as tenant damages, property management (even if you self-manage, you need to get paid for your work - you don't work for free do you?), advertising, accounting, legal, eviction expenses, (vacany of 7% - where did you get that figure?), utilities during vacancies, etc.

Check out some of the posts about the 50% rule, it would be a great place for you to start. I don't personally live or die by using 50% as my operating expenses, but do find it is helpful in a quick analysis.