Today is Decision Day! Please help with numbers.

[Kim H.]

Today is my first "decision" day. I am under contract in my feasibility period on my first multi family investment deal. I have another week in my feasibility period but tomorrow is inspection day, so lots of $$ being spent. I need to make sure my numbers (and other issues) make sense today before I take that next step that costs me money (besides my termination fee).

So here's the story. This property is located on Main Street in a pretty decent party of town (historic Old Town). A C+ property (only because of the fact that it is currently owned by a charitable organization who provides housing for the tenants, but very well maintained and good reputation) in a B- area (at least in my humble opinion). A block from the transit center and some development of new town homes (purchased individually with HOA and a few community amenities, most rented out at $1200 + per month) backing to the property. No other multi family nearby. A few older single family homes (nothing under $1000 per month in MLS for the entire city) in the surrounding streets. This property is a mixture of town homes (5 units) and single family (4 units) on 1 acre of land. Built in the 1950's, remodeled in the late 90's.

The bad. The property had a 10th unit (actually a duplex) on it that was destroyed in a gas explosion in January 2013. A power company was installing a utility pole nearby and hit a gas line. The gas made it's way into the unit, killing the tenant. There is an ongoing lawsuit between the family and the power company. The property owner and property are not involved currently (obviously no one can predict the future here).

Now remember, this is a charitable organization with no leases per se (although tenants do pay for their electric and gas which is separately metered, owner pays water, which is not separately metered). And most of the current owner's expenses and maintenance needs are provided by volunteers in the community. So no numbers for me to go off of. Everything is an estimate, except things like insurance quotes (which I just received one, still waiting on two others), property management fees and taxes (I will get a break on taxes for 2014 because I close after January 1 and the property is currently exempt).

Here are my numbers:

Rents (pro forma - very conservative I feel) - $8100 per month

3 bedroom house (1) - $1075

2 bedroom house (2) - $950 each

2 bedroom house (1) - $875

3 bedroom town homes (5) - $850

Maintenance - 10% - $810 per month

Vacancy - 5% - $405 per month

Property Management - 7% - $567 per month

Insurance - $4500 per year - $375 per month

Utilities (water, trash) - $1000 per month (planning to use RUBS billing to tenants and hoping to recover 85%-- current water bills are around $200 per month (verified) and trash is $130 per month, but I am padding for increased number of people in all of the units - only one person lives in each unit currently)

Landscaping - $500 per month

Advertising - 1% - $67.50 per month (I have access to MLS, so this number shouldn't be too much)

Misc Expenses - 10% - $810 per month (because I haven't had inspections yet and just don't know)

Taxes - $8650 per year - $721 per month

No mortgage

Closing costs - $5000

Purchase Price - $395,000

Rehab (just a plan at this point, all units need cosmetic updating) - $50,000 in first year

So, what am I missing here? Would you continue with inspections (around $3000 out of pocket tomorrow for general, asbestos, and structural) or pull the plug simply because of the gas explosion?