Is This 18 Unit A Good Deal?

[Tyson Lee]

I am looking at an 18 unit complex. It consists of two buildings that each have 9 units in them. The buildings have an upper level with units and a lower level with units. There are 12 units that consist of 1 bed/1 bath and 6 units that are studio/1 bath. I have attached rent roll that was sent to me as well as expenses. I could purchase the building for $500,000 and there is possible owner financing but I have not gotten into that yet as I try to analyze the deal. A couple expenses that are not on the sheet are a new roof last year for $11,500 in both buildings as well as $4,000 in paint and supplies. The units are older and could use some updating and the building was built in 1964. 

I currently own a single family that is my primary residence and this building would be my first purchase into rental property. I would love to get insight from others on this deal as well as things I need to look for and be aware of. I'm sure there are numbers that I currently do not have that I need to properly analyze this. 

Any guidance and advice is greatly appreciated. Thank you

[Troy Marschall]

Hey @TysonLee,

There are a lot of aspects to a deal besides just the numbers, i.e., market analysis, what can the market withstand in rents, is the property value add if so how much can you afford to renovate - what would be the strategy of the renovations, and what is your overall investment strategy (Buy/Flip, buy/hold, BRRRR). I would also like to know what did you get when you ran the numbers, what were your inputs for your analysis?

Few things I noticed right away: 50% of the units are month to month - could lead to high turnover and vacancy. Only $250 in reserves, should have at least $4,500 (250/door, and if the property is older, 1964, you may want to consider more). They are paying 6.35% in PM fees, can you get that same rate? Have you compared?

When I do my analysis, I always use the numbers that the property is currently doing, never what they will do. I only consider rental income: $80,533.57. Expenses automatically to 50%, because assume that you cannot run the property any better than what the current owner is doing, and it being your first property there will probably be some hiccups. Interest rate, I am going to use 5%.

This is my quick analysis:

Rent Income: $80,533.57

Expenses (50%): -$40,266.59

DSYR: -$26,400

Cash Flow: $13,866.59

CoC: 11%

*Note: This did not include closing costs, an increase in the reserves or taxes which I do not believe were on there. 

*An area of possible opportunity, notice in the expenses that the owner is paying utilities.

Hope this helps! 

V/R