Help with a first-time multi-family income property deal

[Abraham Bakre]

Hey BP community,

So I have a wholesale deal I'm looking to acquire for a sales price of 92k. Its a duplex in a moderately bad area that I've lived in close to all of my life.

I'll post some of the numbers first.

Annual Rent: $15,420 (both units renting at $650 & $635 per month)

Minus

Annual Taxes: $988
Property Insurance: $750
Annual P&I: $4,638 @ 5% interest assuming 20% down

Equals

$9,044 in total profit

So I'm wondering if this property should be a contender or not? Please offer any insight/criticism that you deem helpful!

[Joel Owens]

Does landlord pay water or other utilities??

650 X 12 months = 7,800
635 X 12 months = 7,620

Total gross expected yearly rent = 15,420

Take 15,420 X .60 expenses = 9,252

15,420 - 9,252= 6,168 NOI at a 10 cap sales price is 61,680
That is if nothing is wrong with the property and has no immediate repairs needed.

Based on cash flow it's an overinflated loser based on what you have posted.

If landlord does not pay utilities and you go 50%you are still at 77,100 for a 10 cap. If it's a worse area like you said the cap really needs to be 12 or so.

[Abraham Bakre]

Thank you Joel,

I will find out about the utilities. I also forgot to mention that one of the units is section 8. Is that really a pain to deal with? Considering that the tenants could be of lesser quality then regular tenants.

[Joel Owens]

Yes section 8 can be a real pain sometimes.

Every county or city has a program and sometimes they do not call it section 8 but something else. You need to pay special attention to the section 8 voucher and see the difference the tenant has to make up if any monthly for the total rent. Also section 8 generally has extra eviction protections built in and steps you must take.

I also do not like the fact that this is a duplex in a bad area where you probably have other buildings around you that you cannot control the quality of tenant other landlord rent to. For you to have to put 20% down as you mentioned this property seems way overpriced. Your breakeven occupancy level is better with a 4 unit than a 2 unit. It says in your profile that you are a renter. Are you planning on living in one of the units and renting out say the other 3 on a 4 plex?? You could go FHA and put much less down than the 20%.

[Abraham Bakre]

My plan is actually that! But, also to take advantage of first-time homebuyer programs that I've heard about as well. I never seem to come many people who are familiar with those programs. This property is sounding worse and worse.

Thank you