Need Help Analyzing a Deal in Rockville, CT

[David Constant]

Hi BP team - I'm reaching out for some advice/guidance. This is my FIRST deal. Here's the situation:

5-unit off-market in Rockville CT for $260000

-units 1-4 are 1BR and currently rent for $600/month -  market rent is ~$900/month (2units are currently vacant and the other 2 are month-to-month)

-unit 5 is a 2BR and rents for $1050/month (currently rented until March 2022)

-roof, windows, and furnace were all replaced within last 4 years (according to owner - but haven't yet verified by looking at paperwork, etc.)

Owner is interested in seller-financing, but wants to know how much I'm willing to put down to show I'm serious.

Here's what I'm thinking:

-I take ownership of the property by putting 5-10% down. This will leave me with a monthly mortgage payment to the current owner of ~$1500 (principal, interest, taxes, insurance).

-Fully rented, the property will pull in ~$3400 now but ~$4800 after raising rents

After accounting for property management, capex, vacancy rates, etc., I'll still be cash-flowing ~$1000 now and ~$2000 after raising rents. I'm thinking I force appreciation by renovating each unit as I turn them over in the next 1-3 years and then refinance to a traditional lender in order to pay out the current seller before the 5 year balloon payment comes due.

Does this seem like a good plan? Any feedback or advice? Am I missing anything?

[David Constant]

@Filipe Pereira I appreciate your insights and perspective! I'm going to run the #s based off of your recommendations, particularly for rent. I'd rather low-ball my income, high-ball the expenses, and make sure it still works. If it goes up.. great! If not, at least I'm still profitable.

I just spoke to the seller again to get some more info - he's selling because the live-in property manager recently passed away and because the owner is out of state, he's not able to manage the property himself and he doesn't want to find someone new. 

He's got 2 of the 1BR units vacant currently, the other 2 are rented at $600/mo and the 2BR is set to be rented April 1 at $1000/mo with a 3 month lease that then goes month-to-month.

He said he's willing to do seller-financing with 10% down and 7.5% with a balloon payment at 24 months. Those #s just don't make it work for me. I'd have to sink too much of my money into it without the assurance that I'll be able to refinance out in order to pay him off in 2 years. Or am I off in thinking that?

I'm going to see the property on Saturday to assess its current state. 

I'm thinking I could make 2 offers:

Offer 1: he gets his price and I get my terms: buy it at 260000 with 3-5% down and 3-5% interest with a balloon payment at 5 years. This is a win for him because he gets full asking plus the interest for 5 years. This is a win for me because I keep more money in pocket that can then go into repairs which will allow me to increase rent, thus increasing cash flow. This also allows me to pay off more of the mortgage before refinancing in 4-5 years to pay him off.

Offer 2: he gets the terms he wants and I get the price I want: buy it closer to 200000 by using a HML and then take the next 9-11 months to BRRRR it. This is a win for him because he gets more cash now, which allows him to pursue other opportunities. It also reduces his risk: he doesn't have to worry about me defaulting and having to foreclose on me. This is a win for me because I get the property at a price that allows me to BRRRR it and only leave 10-15k in the property depending on what it appraises for.

What do you all think of this plan?