Landlord Pays Utilities

[Andrew L.]

I'm looking at this deal where the gas, electricity, and water is paid by the landlord. The rents are above market because of this. I was wondering when you are faced with this situation on a smaller multi-family property (3-unit) what do you use for the expense ratio? I know everyone here assumes automatically 50% of gross income, but that assumes that the renters pay for utilities. Parameters are below. I ran a scenario using a 60% expense factor and it appears to remain a darn good deal. Let me know what you guys think.

Purchase Price: $99,900

Unit 1 Rent: 950 (3/3)

Unit 2 Rent: 800 (2/1)

Unit 3 Rent: 700 (1/1)

Financing Parameters: 20% down @6% 20 year ammo

My numbers indicate using a 60% expense ratio, that this property's NOI will yield a COC of 24.5% which is pretty stout. The property is in a C+ class condition. The seller does not have a P&L on this property and in fact, I have found that most owners of these smaller multi-family properties do not track income and expenses despite having to report this to Uncle Sam. (An anomaly I still haven't figured out..)

[Tim Cooper]

Something sounds suspicious to me. Whenever the seller won't give information freely be very cautious. Either they are terrible with the books and don't know or there is something wrong they don't want you to know about.