Is this a good deal?

Question

Good Morning,

I have a owner finance deal on my hands. 3 Units total. A store front that is vacant with a hair salon in the back of it. It also has a house that being rented. Seller is asking $130k with 7 % interest and only $5k down over 15 yrs. All three unit when fully rented bring in $1675. My issue is the current Landlord pays the lights, water, insurance, and lawn care witch equal up to $530 per month. How can I make this a deal?

Dennis M. · Answer

@Henri Meli

I like everything about it but the 130k price tag .too high for that kinda rent income

Henri Meli · Answer

@Devin Pickett .  Can you still negotiate the price down? I feel you are really paying high price, considering that a good portion of the asset in not producing any income. You are paying the asset at pro forma.

You will need a deeper analysis of this asset to understand how you can add income and reduce expenses.

Adding income:  Your biggest income generation would be to bring someone in to occupy the vacant unit.  Also turning over tenants and bring new tenants at higher rates and transfer more financial burden to them. Make sure you remain competitive in your offering.

Reducing expenses: Are you planning to self manage? Are you planning to find new tenant yourself (save on leasing fees), if you cannot pass through electricity costs to tenants, can you at least invest in features that will lower your energy bill (LEDs, ... etc). You can do a review of service contracts (Lawn maintenance).

But tenants paying utilities might get them out of business.

Devin Pickett · Answer

@Joel Owens I would be happy with the tenants paying the utilities.

Joel Owens · Answer

See the current leases. Try to see if you can convert leases to NNN where tenant pays. Have to analyze current rent and see if way below market. Likely small mom and pop businesses so might not could stay open if landlord does not pay utilities. Have to see if per the lease tenant is required to disclose financials so you can assess health of their personal and business financials.