Made An Offer On A Tri-plex, Now Im Debating ....

[Cody Jensen]

Hi Everyone,

What a week is has been. I just made an offer on my first tri-plex. I just looked at it yesterday and it's in good shape compared to what I've seen. Now, For some reason I'm getting worried about the numbers. 

Purchase price $170K

25% down: 42,500

127,500 Financed over 30yrs @ 5.250 (Of course, yesterday the feds rose the interest rates.)

Out Of pocket: $51,000 (Includes closing costs($10,000) and down payment.)

Expenses: (Month)

Mortgage: $704 @5.25%

Taxes: $416

Sewer:$150

Insurance: $83.50

Oil Heat: $50

Misc: $100

Total: $1,503.50

Income:

Unit 1 : $1000

Unit 2 : $875

Unit 3 : $800

Total : $2,675

Yearly:

Income $32,100

Expense: $18,042

Total made after expenses: for the year $14,058

Now for the amount i'm putting down would you consider this a good or bad deal? I'm confused, i feel like putting out $50K for a 27% return on my money isn't really worth it..

Do you agree or disagree? 

Thank you in advance, I feel as if I'm in a rut right now.

[Derek Tellier]

@Cody Jensen

First congrats on taking at least that step, nothing will happen until you start doing it. 

Has the offer been accepted? 
After the $50K up front are you leaving yourself any reserves? You don't have vacancy, repairs, CapEx or Prop Management factored into your numbers and you don't mention the overall condition of the property. Does it need any work? How old is the roof, HVAC, etc?

Any opportunites to add value like storage space you could charge for, pass the heat or sewer costs on to the tennants, are rents below market? 

If your offer is accepted I'd hope you gave yourself some time to do your due dilligence and some contingencies to pull out of the numbers don't meet up. 
As long as you gave yourself that option then just take the time to verify the numbers, if you have a relationship with any other local investors or contractors ask them to come walk the property with you and get some input. 

You'll have the ability to get out if it's not right but at some point you just have to take the plunge and hope you make fewer mistakes than you expect and come out ahead. 
Think long term though, even if it ends up costing you more up front and your cash on cash isn't what you expect to start out just remember that as time goes on your tennants are paying down the mortgage the property is appreciating (hopefully) and you're getting some nice tax write offs. 

Good Luck