Should I buy this as my 1st investment property?

[Cameron Calvert]

I'm currently renting for around $1000/month and am looking to get into investment properties. I'm currently in talks with a seller who has a 4 unit (2 duplexes) for sale that is being used as a vacation rental banking $98k/year in revenue between the 4 units. The asking price is $610k. My plan initially would be to live in one of the units while managing the other 3 vacation rental units. I would be using an FHA loan so I would only put down 3.5% plus closing costs.

I would manage the property and take care of landscaping that first year while living there and should cashflow at least $5-10k while living for free. After I moved out, I would be getting revenue from 4 rentals instead of 3 and would continue managing the property and doing landscaping. In that scenario I would be cashflowing $27k-$32k per year. The place is well taken care of, has been remodeled, and comes with high quality furnishing. It's considered a "turnkey" property aka would be ready to earn me money without having to do anything to it. I live in a booming market where tourism is big and retirees are moving to in droves.

The cap rate renting all 4 units is around 11% and is 7% when I'm living in one of the units. I would have my cash back within 2 years. I've calculated all my expenses and have even been conservative with my numbers. I'm pre-qualified to buy and I wouldn't pay the full asking price.

My question to you is this. Is this too big of a leap for my first purchase? Are the numbers too good to be true? Will I struggle to run successful vacation rental cottages out of the gate?

[Lauren B.]

is 98k gross revenue? It almost certainly is gross not net and it sounds like he's selling a business not just real estate. You need to know why the deal has fallen though 3 times. I strongly suspect this is priced as a business and not real estate, meaning it won't appraise for an FHA loan. That's what I see as your biggest hurdle. Do you have a realtor?

Something else to consider. If the Airbnb algorithm changes and you can’t Airbnb as successfully as it was previously (over $100/night per unit at 66% occupancy) can you make the mortgage? Can you sell it as real estate without the business or will you lose money on this deal?

as a previous person posted... lots of savvy investors here. If it’s on the market and others have passed, you should find out why.