Owner financing, analyze this dea

[Jason Lamb]

Hi All, So I am still looking for my first deal. I have a customer/friend who has a 4- unit building that is willing to owner finance. We briefly discussed some numbers and here is what we have initially came up with. The property just appraised at 363k Has new roof, has just been painted. The boiler is about 10 years old. just replaced the water heaters with an on demand system and I have replaced and or repaired all the faucets and toilets. Most tenants have been there for 5+ years Rents have been raised after he bought building with 1031 exchange about 2 years ago He would like to balloon out in 5 years with a 6.5 % rate Rents are as follows Unit 1- $975 Unit2- $850 Unit3- $850 Unit4- $850 Total of $3525 Taxes -$6000 Water/sewer-$1800 /year Electrical-$50/month tenants pay their own electric. This is just the house meter Oil-$2400/year steam heat Gas-$100/month water heater and stoves Insurance-$2100/year I would self manage not sure what I should leave out for that. This would be my first experience being a land lord so I'm sure i am leaving things out But any and all help would be appreciated!

[Ryan Murdock]

@Jason Lamb What's your goal? If it's for this building to sustain itself and be cash flow positive right out of the gate I think you will be disappointed. 

Based on your numbers:

Annual Rents: $42,300

Annual stated expenses: $14,100 (this does not include R&M, VCL, RES, grounds, management, etc etc)

Debt Service: $32,472 ($363k @ 6.5%, 20yr amort).

= ($4,272) you are already taking a loss.

Portland is absolutely nuts right now. My guess is your seller paid top dollar when he bought it as many 1031 guys tend to do as it's still better than taking tax hit.

Add in the crazy appreciation that Portland has experienced since then and you are paying a huge premium. You can gamble on the hope that the appreciation will continue and you'll look like a genius in 5 years or there could be a significant market correction between now and then and you're apt to find yourself in a real jam. 

Maybe I'm a little skeptical as 2 hours north of you I'm buying properties for 30% less that generate 75% more income. If this is your first deal maybe try and sniff out something a little more profitable in the 'burbs rather than right in the thick of the mayhem?

No doubt 100% owner financing is worth paying a premium for but it doesn't automatically mean it's a good deal.

I say beat him up significantly on price or keep shopping.