Should I buy this triplex....?

Question

Hi right next door to my current two duplexes a triplex has opened up. Property is in Chehalis WA not Tacoma. $665K Asking I put in and offer for $650K that was accepted. I put $6500 in earnest down this past Friday, and I also did home inspection of Friday. Rent will be raised to $900, $900, $800 in Oct of this year. Market rate for these should be $1200, $1200, $1000. Current 6 month contract, property management company is doing it 8%. My loan is 30 year , 25% down, on $650K, Note rate 6.625%, APR 6.717%. Home inspection the bones of the property is good. But there is things that need work, bath room fan replace, several baseboard heaters not turning on. Wall behind one of the laundry machines is soft, I can tell water damage. 2 tennants been in since 2019 no messy but not the cleanest, 1 tennant been in since 2016 ok. Cabinets old. One has a dog. No smoking. Roof is ok, one electrical panel needs replaced, all outside main switches need replaced. Deck stairs need a little work. It has two closed garages. There is room to expand the lower underneath unit, buy incorporating storage room in garage. maybe making two one bedroom short term rentals on bottom but would require full rehab and telling other tenants to take out there stuff from storage which at this point would be hard. Clearly this doesn't meet cash flow, Cash on Cash return or anything I believe. I'm just looking at it because it is right next to my other Duplexes which by the way on unit is my primary residence, and place I'm going to live in forever pretty much. I can pay it off in 15 years most likely.

I can slowly raise rent every 6 months until they get to market rate in 18 months, and then I will have to shell out money initially to make it work.

Should I do this?

Thanks,

Ken

I can slowly raise rent every 6 months until they get to market rate in 18 months, and then I will have to shell out money initially to make it work.

Should I do this?

Thanks,

Ken

Scott Mac · Answer

Hi Ken,

Right next door to where you will live forever seems so tempting, easy to manage, lowers competition for the existing units.

If you are a self manager and a hammer swinging type rehabber I can see the attraction.

But you can't change math, if the math doesn't work out for you, ouch.

Good Luck!

Henry Lazerow · Answer

I cant believe people are saying go ahead. That property will be strongly negative cashflowing. Just buy an index fund will be a better risk adjusted return. Appreciation is great but has to cashflow too or its a liability.

Patrick Drury · Answer

@Ken LimBased on looking at this deal, if you're not able to invest locally or cannot get the returns, you are looking for you should invest out of state. I would recommend looking in the Midwest. Columbus OH is a great place to start looking in the Midwest. It's a nice balance of cash flow and appreciation. Also, it has lots of job opportunities and population growth. I also live and invest locally here in Columbus.

Billy Daniel · Answer

Thats a tough one.

This is what I would do in my current situation.  If my regular job is paying my bills and my rental units are cash flowing, I would buy it.  Especially if the other rentals would be able to help cover the low initial cash flow.  I don't rely on my rental income to pay any bills outside of the rental business, yet.  I care less about the money I get today and more about the money I'll get in five years.  I'm not familiar with that market, but it seems like there is plenty of room to add some value and potentially resell in a few years.  It also seems like a good buy and hold.

I say go for it if you can stomach the first year or two!  Good luck and keep us posted!

Bjorn Ahlblad · Answer

That price and rental income ratio of that property is similar to many others in western wa today. Marginal return that may get worse if things turn negative. If you underwrite correctly including capex, vacancy and mtce. There is no monthly cash flow and you are feeding the asset every month. Just my thoughts. Whatever you decide, all the best!

Ken Lim · Answer

Hi Everyone, I ended up passing on this deal. It wasn't cashflowing. Then something else has popped up.

John Barrett · Answer

@Ken Lim My take is that it really depends on if you are able to negotiate with the seller on the price.  Clearly the condition of the property would justify price concessions.  This along with higher costs to finance the property will make your return in the short term smaller.  This is less of an issue if you plan to hold the property for a number of years.

I do like the idea of having a number of properties in close proximity as it does make management easier and allows for some economies of scale.  That said, if the property does not meet your required return either due to the purchase price, scope of work or associated risk, then you have your answer even if it is not the one you would like.

John

Justin Bailey · Answer

@Ken Lim seems sketch for the math. The appreciation is great but doesn't give you options or an escape plan if the property doesn't pan out and that's alot of cash down for no return (negative actually) personally I look for properties that I could do short term rental, buy and hold (BRRRR) or fix and flip. The property has to check all 3 boxes for me because it gives me options. I also like to choose properties that do both cashflow and appreciate, its hard to get both. Maybe I'm to cautious but I make sure the property works for me. Most importantly the numbers work.

Paul Britton · Answer

Good Call Ken.

Paul Britton · Answer

This is exactly what I did after a quest to find cash flowing markets in Canada

Should I buy this triplex....?

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