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Updated about 8 years ago on . Most recent reply

User Stats

32
Posts
9
Votes
Lee Lockhart
  • Contractor
  • Chicago, IL
9
Votes |
32
Posts

6-unit Building offer submitted

Lee Lockhart
  • Contractor
  • Chicago, IL
Posted

Hello everyone! I submitted an offer on a 6-unit multifamily in Chicago. The offer is $190,000. Every unit is 3bd/1ba. Tenant pays for their heat, electrical, and hot water. Four units are rented. The remaining units are rent ready. The owner is collecting rents ranging from $850 to $1000. I feel with some value added repairs, rent can't reach $1000/unit. I feel some added cosmetics are needed. The property is located in a middle of the road neighborhood. There are apartments on the black. According to the owner, everything is updated. Water was in the basement, but owner said the drain needs rodding out. I will have my plumber and electrician to check everything out before purchase. Taxes are $6000 per year. Is there anything I'm missing? What do you think of this deal. 

Most Popular Reply

User Stats

710
Posts
458
Votes
Kevin Siedlecki
  • Investor
  • Madison, CT
458
Votes |
710
Posts
Kevin Siedlecki
  • Investor
  • Madison, CT
Replied

@Lee Lockhart - Paragraphs can be difficult to distill analysis from. Are you paying cash? If so, here's my analysis. * are things you didn't mention above. Here's what I see to be the best case scenario:

Purchase price: $190,000

*Closing Costs: $5,000 (?)

Updating/Repairs: $15,000 (?)

Total acquisition: $210,000 (?)

Gross Rent: $72,000/yr

Taxes: $6,000/yr

*Insurance: $2,000/yr

CapEx (10%): $7,2000/yr

*Vacancy (10%): $7,200/yr

*Maintenance (Snow/Trash/Leaves. etc) (10%): $7,200/yr

*Management (10%): $7,200/yr

That leaves you $35,200/year for Cap Rate of 18.5%, and a COC ROI of 16.7%. That's approaching too-good-to-be-true category for retail house in even decent shape, which leads to a whole new set of questions. Why are only 4 units rented? Why do you think you can get all of them rented, and why at $1000 each (you say can't but context of the sentence leads me to believe that was a typo)? How much work do they really need? What does the owner mean by "everything is updated"? Are the tenants actually paying their rent every month? Is the neighborhood a mess?

With the 2 units vacant and rents where they are, the cap rate is is a much more reasonable 8-10%, so your purchase price is right on target. I just wonder why anyone would sell with two vacant units if the house is in decent shape in a decent neighborhood. If you don't have much or any experience as a landlord or owner, you probably don't want to deal with the kind of neighborhood that produces those kind of on-paper numbers.

Hope this helps!

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