New Investor - Thoughts on 6 unit property - Analysis

[Drew G.]

Hello All,
My wife and I are looking at two 3 unit buildings that are being sold as a package or they can bought indvidually. I have been doing a lot of reading and using the spreadsheets I found on this site to prodcue some analysis. If possible I would like to hear some feedback on the properties below:

Property 1: Listing price $149,000
2 Commercial Units & 1 Residential

Income: $17,499
Factored in a Vacancy/Loss Rate = 5% or $921

Expenses:
Taxes = 2200
Insurance = 700
Trash = 400
Water/Sewer = 1,000
Maint = 2,000 (high estimate)
Total Expenses: $6300
Expenses of % of Gross Income =39.20%

NOI = $11,199
Mortgage = $7,854
Total Cash Flow = $3,345 Cash ROI =7.37%

Property 2: Listing price $149,000
2 Commercial Units & 1 Residential

Income: $17,100
Factored in a Vacancy/Loss Rate = 5% or $900

Expenses:
Taxes = 2600
Insurance = 800
Trash = 400
Water/Sewer = 800
Maint = 2,000 (high estimate)
Oil = $3,900
Electric =$1,800
Total Expenses: $12,300
Expenses of % of Gross Income =73.33%

NOI = $4800
Mortgage = $7,854
Total Cash flow = (3,053)

Property 2 obviously does not look good on paper because of the expenses due to oil and electric.

She has them listed to buy both for $289,000. If you combine the properties they come out to a positive cash flow with expense at 52.2% of income. My thoughts were get the seller to come down on price so I can convert from oil to natural gas and also pass the electric onto the tenants to cut costs.

Any opinions on this would be greatly appreciated!!! Thanks

[Joffrey Long]

Just one thought: When looking at anything, residential or commercial, that's leased out to smaller businesses or individuals, I like to see where I stand (rent-wise) if those people leave.

So, before doing this transaction, I'd want to carefully research where your tenants (both the businesses and the residential renters) can go if they leave you, or if you raise rents, how much comparable vacancy you're competing against if you have to re-lease something, or if there's vacant land nearby where someone could build rental space and compete with you.

This has really helped me on properties I've purchased or made loans on. Sometimes the results of carefully going out and really looking at my potential rental competition has made me realize that if I need to re-rent one of the units, I'm in deep trouble. Or on other occasions, it helped me realize I'd found quite a deal.

Joffrey Long