3 unit 210k analysis

[David K.]

Hey Guys-

Let me know your thoughts.  3 unit with with market rents of $2700, higher if a closet is added to on of the rooms which is now used as a double parlor which already has pocket doors in it.

Units are in average-slightly below average condition.  Mostly cosmetic.  A lot of painted paneling and drop ceilings.  Cabinets need painting and new hardware etc.  Upgrading appliances would help too.

The good news is the hot water tanks are all 5 years old or newer, all separate as are the heating systems which are 10 years old roughly.  The house has plenty of parking and vinyl sided.  Roof isn't in great shape, but has plenty of time left in it.

I'm thinking if I can grab it for 200k, then put 10k into it for appliances and other minor cosmetics I won't do too bad.  REALLY thinking making the units all 3 bed and rent jumps up to 3k.  5 years ago this place would be 130-150k, but someone paid 300k peak 2003.

Big things for me are parking, vinyl siding and windows and separate gas systems, all of which this place has.

Thoughts?

[Eric Bowlin]

@David K. I own more than 30 doors in Massachusets.

It sounds like you're buying a three decker. What city? Based on the price and rents it sounds like somewhere in central ma but not Worcester or maybe on the south coast.

Anyhow, converting the 2nd parlor to an extra bedroom is a risky proposition. If the city building or health department is ever called to your house, they may realize you've made some conversions. The problem in MA is the laws requiring sprinklers in any 3+ unit building. I'd make sure to stay far away from anything that changes the use of the building in any way.

The other issue is your rehab budget. I'm very familiar with this style building and if you have 3 units all around 1,100 square feet, which is typical in a three decker, then you're probably talking $5k/unit just in basic remodeling including paint, carpet, cleaning, etc. You also need to check the wiring make sure it has no knob and tube which can run 3-6k per unit to remove. Adding in the roof, I'd say your rehab budget should be closer to $30k not 10k.

Lastly, I'd check for delead certificates. I've found it nearly impossible to rent anything that has 3 beds or more without them. The problem is you have to delead if a child under 6 lives there, and average cost in the state for that is well in excess of $10k/unit. It's really hard to find renters without a young child, and rejecting a tenant for that reason is discrimination anyhow.

I love these sorts of buildings in the state, but you have a bit more digging to do before knowing if it's good or bad!