Deal Analysis: Basic Math, Calculators and Finding a Great Deal

[James Hutson]

Good Evening BP'ers

Interesting situation here:

Planning to house-hack a triplex or quadraplex here in Raleigh, NC

Even once I can secure the finances, hunting down the right property has proven to be EXTREMELY difficult. Raleigh is a great market--constantly ranked in the top 2 or 3 cities in the country for jobs and just in general. Perhaps it's just my inexperience in deal analysis keeping me blinded to opportunities.

The problem is, not only can I not figure out how to calculate/where to find half the data needed for the Rental Calculator, but even if I get the rough numbers, I cannot find any properties that are profitable. The ones I find barely cover the mortgage, let alone the mortgage and the 50% expense rule of thumb. So the bottom line is I'd be lucky to find one where I live for free. Seems like turning a profit at all, let alone the minimum I want of $200/m is an impossibility.

I know I may be foolish searching the MLS. I should probably go to our TREIA meetings or the other deal-making sessions around here. I think the investors find all the good ones before they ever hit the market. Perhaps I should start contacting owners of off-the-market or withdrawn tris and quads and if the numbers work, make an offer?

For instance, bellow is the basic data on a triplex I ran through the BP Rental Calculator.

• Built in 1996
• Two story
• Listed: $225,000
• Sp: $215,000 (hypothetical of course...it was on the market for ~100 days and was withdrawn a few weeks back).
• Loan: $215,000
• Down Payment: Assuming FHA 3% = $6,450
• Interest Rate: Not to exceed 4% (here I'm seeing FHA's go for 3.8ish)
• Annual Taxes: (2015) $2,339
• Annual Insurance: Not sure what insurance is on a triplex and I know it depends on the area. Thoughts?
• Tax Rate: 0.908
• Unit 1, 2 and 3 are each 2 bed, 1.5 bath.
• Rent: Unit 1 $725/m. Unit 2 $700/m. Unit 3 $695/m If updates/repairs are made, I imagine I could boost these numbers. Not sure how much since I don't know the ARV or what other rents in the area go for since most are 1 story duplexes or quads and most aren't updated/improved.

What are your thoughts on it and what else am I missing. Again, I wasn't able to fill in all the fields in the calculator since I was unsure about how to calculate/estimate/find some of the data (e.g. after repair value, closing costs, etc...)

Perhaps I'm running the numbers wrong and I need to find out how to run them correctly so I can start building experience with deal analysis. This will be a must when it's time to apply these calculations on my future triplex.

Thanks a million!

[Chris Martin]

Welcome to the top of the market!

A few comments. First, there are not many triplex or quadraplex properties in Wake county. These numbers are for ONE FAMILY (01), TWO FAMILY (02), THREE FAMILY (3), FOUR FAMILY (4) based on Type & Use field public data:

289284 01
2741 02
497 03
624 04

Most 2-4 family are in Raleigh. The numbers restricted to just in Raleigh are:

146531 01
1893 02
326 03
589 04

Of the 326 triplexes, many were built in the early 1980s...

19 1980
17 1981
25 1982
23 1983
30 1984

and one was built in 1996. Second comment is that you are using numbers for an almost fully leveraged deal, which is great! But that takes a toll on cash flow because of debt service. Third comment, one you probably know, is that the handful of comps (arms length transactions, no Disqualifying flags) are actually lower $/sq.ft. than your deal. Probably why it didn't sell. Last comment is that the owner bought for $205K (+/- $250) in 2002 and prior owner for $188K (+/- $250) in 1996. Not much appreciation there for either owner. Maybe not for the new buyer (you?) either?

No (most likely negative) cash flow and no appreciation. Not ideal in my opinion...