Deal or No Deal....

[Eric Moore]

I came across an owner who recently evicted a tenant.  He informed me that him and his wife are getting a divorce and his wife would like to sell her 8 plea and 3 plex.  He showed me the properties and they are in a B- neighborhood.  However the condition of his wife's properties amount to a C-.  The 8 plex needs a new roof and both properties need the foundation fixed.  My plan is to give some cash up front and then have have the owner carry the note.  Properties are paid off.  So here's the combined numbers for both props on a monthly basis.

Purchase Price For both Properties: $120,000

Gross Income (both properties): $5,965

Gross Effective Income (10% Vacancy rate): $5,368.50 

Net Operating Expenses: $2741.31

- Cable - $50 (it's gerry rigged)

- Water - $435

- Electricity - $450 (3 months during the summer its $800 a month)

- Dumpster Fee - $185

- Fire Insurance - $41

- Property Mngmt - 7% (I will use professional management)

- Taxes: $363.34

- Maintenance: $800

Net Operating Income: $2,627.19

Capital Improvements: $25,000 (roof, foundation, paint, flooring)

The owner combines all expenses for both properties because they are side by side.  For the 8 plex I estimate the net operating income is $22,706.19 for the year.  Purchase price for 8 plex will be $63,000 which amounts to a 36% Cap Rate.

Thoughts?