Buying & Selling Real Estate
Market News & Data
General Info
Real Estate Strategies
![](http://bpimg.biggerpockets.com/assets/forums/sponsors/hospitable-deef083b895516ce26951b0ca48cf8f170861d742d4a4cb6cf5d19396b5eaac6.png)
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
![](http://bpimg.biggerpockets.com/assets/forums/sponsors/equity_trust-2bcce80d03411a9e99a3cbcf4201c034562e18a3fc6eecd3fd22ecd5350c3aa5.avif)
![](http://bpimg.biggerpockets.com/assets/forums/sponsors/equity_1031_exchange-96bbcda3f8ad2d724c0ac759709c7e295979badd52e428240d6eaad5c8eff385.avif)
Real Estate Classifieds
Reviews & Feedback
Updated about 7 years ago on . Most recent reply
![Ross Kerne's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/925070/1622655117-avatar-rossk16.jpg?twic=v1/output=image/crop=919x919@0x0/cover=128x128&v=2)
Help me validate my first rental property(ies) analysis
I am ready to pull the trigger on my first rental property, and you could say I'm jumping in with both feet. I've been lurking on Bigger Pockets, reading, and listening to podcast for about 6 months. I am still learning a lot everyday, but I getting comfortable enough to take action and bring learning to the next level.
I found an off market 4 plex in Central Louisiana, and while viewing the property, the seller stated that he would also like to sell the 4 plex next door! The units are low income, but not the worst area of town. Each of the units need some exterior work, but the inside seems to be rent ready. There are some key observations that could work in my favor, or could be red flags that I'm too naive to avoid. The seller was originally asking $150K each, but within 15 minutes had already knocked $60K-$80K off of his own asking price for an "as-is package deal". He said he'd take $240K for both, maybe $220K if owner financed. I don't think I want to go with owner financing for my first deal.
Conventional Financing and Property Management are lined up, but the estimate for insurance should be on the high side.
Structure Details:
Unit 1
- 4 - 2 bedroom 1 bath
- 2 stories, built in the early 80s, brick and wood siding
- 3 of 4 units currently rented month-to-month
- Rent ranges from $625 - $550 (tenant pays utilities)
- Mixture of tile/carpet
- Some units come with washer/dryer, but all have hookups
- Metal staircase needs to be repaired or replaced $$$
- Roof is in bad shape, needs to be patched or replaced $$$
- Fascia and soffit on 2nd story needs significant work as it is hanging with visible rot
- Outside AC units are a mixture of old and older
- Comps for nearby 4 plexes average about $165K on MLS (realtor friend pulled them)
- Tax Assessor Value $159,000
- Roof, fascia, and stair repair estimate $19,000
Unit 2
- 4 - 1 bedroom 1 bath
- 2 stories, built in the early 80s, brick and vinyl siding
- 0 of 4 units currently rented, and seller said that he hasn't put any effort into finding tenants (red flag?)
- 1 bedrooms are rare in that area, but should go for $400-$450 (tenant pays utilities)
- Power and water was turned off so I couldn't really test appliances or AC/Heat
- Mixture of tile/carpet
- Some units come with washer/dryer, but all have hookups
- Roof is in bad shape, needs to be patched or replaced $$$
- Outside AC units are a mixture of old and older
- No comps available for 1 bedroom 4 plexes in the last year
- Tax Assessor Value $112,000
- Roof repair estimate $8,000
Analysis Details:
Unit 1
- Tax Assessor Value $159,000
- Roof, fascia, and stair repair estimate $19,000
- Planned offer $110,000
- Current rent ranges from $625 - $550, but rents in the area are listed at $500-$550 according to PM
- Average rent $550 = $2,200 monthly
- PITI $790
- P&I $424 (25% down, 30 yr fixed at 4.625%)
- Taxes approx. $200/mth (from tax assessor page)
- Insurance approx. $166/mth (lender says this should be lower)
- Initial Cash Flow $1,410 (= $2,200 - $790)
- Other monthly cost $1.070
- 15% Maintenance $330
- 10% Vacancy $220
- 10% Cap Ex Savings $220
- 10% Property Management $220
- $80 average monthly lawn care
- Total Monthly Cost $ 1,860 ($790 + $1,070)
- Final Monthly Cash Flow $340 ($2,200-$1,860)
- 3% for closing ($2,200)
- 8.3% IRR w/ $19K repairs (13.6% ROI if initial repairs are paid for as cash flow comes in)
Unit 2
- Tax Assessor Value $112,000
- Roof repair estimate $8,000
- Planned offer $90,000
- Rents for 1 bedrooms in the area are $400-$450 according to PM
- Average rent $450 = $1,800 monthly
- PITI $660
- P&I $350 (25% down, 30 yr fixed at 4.625%)
- Taxes approx. $140/mth (from tax assessor page)
- Insurance approx. $166/mth (lender says this should be lower)
- Initial Cash Flow $1,140 (= $1,800 - $660)
- Other monthly cost $980
- 15% Maintenance $300
- 10% Vancancy $200
- 10% Cap Ex Savings $200
- 10% Property Management $200
- $80 average monthly lawn care
- Total Monthly Cost $ 1,640 ($660 + $980)
- Final Monthly Cash Flow $260 ($1,800-$1,640)
- 3% for closing ($2,025)
- 9.5% IRR w/ $8K repairs (12.5% ROI if initial repairs are paid for as cash flow comes in)
The big question... Would you take this deal?
As a bench mark, @Brandon Turner shoots for 12% and $100 per door (wants $200/door)
If I factor in maintenance, vacancy, and capex; cash flow and ROI seems low by comparison, but if I extract those cost, I am cash flowing $1,100 & $880 at 27% and 32% ROI. If I wait to do the repairs with cash flow, the ROI is around 44% for each.
Does 5 of 8 vacant units (and currently no power/water in the 4- 1bds) throw out a red flag, or is that insignificant? I plan to write the purchase agreement pending inspection.
If you made it this far, thanks for reading the wall of text. I would appreciate any input. Thanks
Most Popular Reply
![Mike H.'s profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/35046/1621367782-avatar-hasemann.jpg?twic=v1/output=image/cover=128x128&v=2)
So here are my thoughts. But keep in mind I only do single family.
1) re: Price not a red flag.
He's not really giving you a deal at 220k. Not if the first one is worth 160k and the second 110k and the second one is completely vacant. There's no way he's getting 150k for the second one if it only has 1 bdrm units and its completely vacant.
2) re: Assessor value.
Don't even bother looking at the assessor value. That has no bearing on the actual property value. That being said, it sounds like other properties like bldg 1 would be worth about 160k so then you're fine. But you need to comp out the second building some way because you don't want to take the assessor's value - unless you think the assessor's value is actually below market value, then use it in your negotiations. :-)
3) re: Seller financing.
Why are you against seller financing? Seller financing is a great way to preserve your own capital/cash and to increase your returns.
It looks like you're planning on offering 200k for the pkg. And that would mean coming out of pocket 25 to 30% on the purchase (50k to 60k) plus the rehab of roughly 27k.
Why not ask the seller to give you 15 or 20% in seller financing. You need to ok that with your bank but their risk would be the same. You'd still have 10 to 15% skin in the game and you could tell the bank you would then use the additional savings to do some more updates.
4) re: Rehab of second bldg
Thats a bit of a concern that you have no water or electricity in the second building. How do you know what other repairs might be needed? Does the water heater even work? Electric problems? Water leaks?
You might have some hidden repairs in there - which again is another reason to get seller financing on a portion of the deal so you can keep more of your capital/cash in your pocket.
5) re: Is it a deal.
If you can get 8 units for 200k, then you're paying 25k plus an additional 4k to 5k in rheab. So you're basically all in around 30k a door including rehab. But the issue there is your rent estimates. You need to narrow that range down a bit to know whether this is a deal. Are the bldg 1 units going to rent for 550 or 625.
And why are the units rented month to month? Is the area bad? Can he not get any decent tenants in there at all because the units simply are not that nice?
Month to month tenants tend to equate to more sketchy areas and that might be an issue over the long haul.
But lets say your rents on bldg 1 are 600 and 400 for bldg 2. Thats an average of 500 a unit per month while you're paying 30k a door. Taxes look pretty good. I would think you would do ok numbers wise on that deal.
But I would add a couple of things there.
1) Gotta know your rents.
2) Are you fairly assessing the condition of the properties? If so, why is it he's only been able to get month to month tenants in there.
3) How long has bldg 2 been vacant? And why?
4) Do you have some hidden rehab in building 2 that might get real expensive given you don't have power or water on?
5) The fact that 5 of the 8 units are vacant should be looked at as a buying opportunity. If you really want these, I would come in lower (say 160k) and let him know your concerns as to why - vacancies, month to month tenants, unknown rehab needed, etc. And I would also ask for 10 to 20% seller financing so you can preserve as much of your own cash/capital as possible.