Screening My First Deal

[Derek John Sharrard]

Hello everyone,

I am looking for some tips and recommendations on a Multi-Family that I am looking at purchasing. This is my first Investment Property that I am doing and I want to make sure I am getting a relatively good deal.

The house needs no work on the Interior. All of the units have been updated and look really nice. There are no foudation issues. All the appliances have been purchased in the last year. The only problem with the house is that it has asbestos siding. The siding is in good enough condition, but I know later that it will cost me either to remove it or to go over it and seal it with new siding. I was wonding if anyone could comment on that and give me any tips if they have dealt with asbestos siding before. Most of the homes in my area have asbestos siding so this is kind of par for the course when buying a home.

The Multi-Family Home has 3 Units and the Asking Price is $54,900.00.

1 Unit has 2 beds/1 bath and the other 2 Units are 1 bed/1bath.

The 2 bedroom is currently renting for $650.00/month and the tenant has been there for 6 months.

The other two units are renting for $425.00/month and $400.00/month. One tenant has been there for 1.5 years while the other has been in for 6 months.

Monthly Rent Roll is currently $1475.00/month.

I set up an Amortization Schedule for 15 years @ 3.50% and the payment comes out to $400.00/month with P&I Insurance.

Taxes on the property are currently $2000.00/year which comes out to $160.00/month. I believe the taxes are extremely high on this property and I plan on fighting them, but for sake of this discussion, let's assume the stay at the current rate.

I budgeted $200/month for Insurance just to be safe. I have never dealt with an insurance company and just wanted to prepare for the worst. I don't see how Insurance could be over $2400.00/ year.

Current Owner pays for electric and water and says the lowest bill has been $250.00/month with the highest being $350.00/month

Current Revenues = $1475.00/month

Current Expense = $1110.00/month

Net Income = 365.00/month

2% Rule = 1475.00/54,900.00 = 2.69%

I am looking to do an FHA Loan on this property with a 3.5% Down Payment. Down Payment would be $1925.00 and the Seller has agreed to pay all concessions.

Since I am doing an FHA Loan the property will need to be owner/occupied which means I will have to evict one of the tenants. I was going to evict the one rent rolling for $425/month becasue the tenant renting the $400.00/month unit has been there for 1.5 years. I still have to do my screening to be sure, but that is the way I am leaning currently.

When I started this whole process of looking at properties, I didn't know if I should be looking at what they will rentroll entirely without me living there or if I should be looking at it with me living there and taking away one of the units rent. What is the best way to look at properties? Everytime I look at them fully renting the numbers always work out to be positive and looks like a really good deal, but when you take one of the rents away it starts to look a little more problematic.

So that is pretty much all the information that I have. If anyone that post here wants more information before they give me a recommendation, please ask and I can get it for you.

Thanks,

Derek Sharrard