Amazing opportunity or just a silly deal?

[Samson Tse]

Hi guys,

I'm new to RE investing and would like to get some advice on the following property in Ontario, Canada. I've been reading up on RE investing the past year and have been browsing MLS for roughly the same amount of time. Recently I found a property that meet the spec and want to know if I am no the right track.

This 6plex is in a not so great neighbourhood but 1 km away from a University

Asking Price: $180k (Want to put in offer at $165k)

Gross Annual Income: $40,980 (Adjusted to $37,140 due to inflated rent in 2 of the units and the tenants will be moving out soon).

Vacancy Rate: 4%

Cap Rate: Close to 11%

Debt Coverage Ratio: 2.18

Expenses: Around $18,220

NOI: $17,435

Cash Flow Before Tax: $9,448.89

Case Flow Before Tax Per month: $787.41

This property also very deep at 200' and has a garage in the back with a parking area that can be access through the back alley.  I might be able to increase income by renting the spots out to University students and renting out the garage.  

2 out of the 6 units will be leaving the property in coming months.  3 out of the 6 units are rented by Chinese students with 1 year lease ended and currently on month-to-month basis. 1 Unit is rented to an elderly woman on 1 year lease and according to her neighbour, she has some mental disabilities (not sure if that's relevant).  

This property is in a decent size city with 250k population and current vacancy rate is 5.8%.  Also, the unemployment rate is 10% which is quite high. I've also got more crime stats from the Police within the block of the property. 

Here are the stats in the past 10 years:

Theft from motor vehicle: 20 incidents

Domestic Complaints: 18

Mischief: 11

Lost and found: 10

Break and Enter Dwelling: 10

Breach/Bail Conditions: 8

Theft other: 7

Assault: 5

And a bunch of other 1s and 2s of theft, Threads, MHA, Landlord issues, etc.

I would really like to know so of your thoughts from people with experience.  Thanks very much.

[Aaron Montague]

@Samson Tse

Looks decent from the initial numbers. Students tend to be good tenants, I would focus your efforts there.  Add a few safety type features.

Are these 1/1s?

What does each unit bring in?

However I cringe at the "expenses" being lumped into one giant bucket.  What are your individual expenses broken out?  I use the following list to calculate my total monthly income:

Monthly Mortgage payment

Taxes (you mention income BEFORE TAX, I assume you mean personal tax, right?)

Sewer and Water

Trash (do your property taxes cover this?)

Heat/Utilities (which utilities are you expected to cover?  Canada is COLD!)

HOA

Cap Ex and Ops (stuff will break.  Make sure you put at least $200 every month as a pre-paid expense in this bucket.  Put it in a separate account and don't touch it)

Insurance

Mgmt Fee (generally 10%.  Even if you intend to self manage, pay yourself)

Vacancy (4% is awesome.  If you can keep it that low, great.  I'd still put in 8.1%.  8.1% represents 1 vacancy/apartment/year)