Review My Deal Please - Critique's Welcome

[Mark Patino]

Hey BP! I found a 19 unit (multiple houses, mobiles, and duplex's on some land) that is for sale. I'm hoping to just get my numbers double checked and to see if it would be worth moving forward on this deal. Any critiques on what I may have missed is much appreciated. 

Income:

Total Gross - $112,440

10% Vacancy - $11,244

Total Net - $101,196

Expenses:

Total Expenses - $34,976 (seems low to me...and there is some updating that needs to be done with the property. Everything is working, but the units look a bit dated.

Net Operating Income - $66,220

Annual Debt Service - $39,551

Summary:

Total Gross Income - $101,196

Total Annual Operating Expenses - $34,976

Total Annual Debt Service - $39,551

Cash Flows - $26,669

DCR - 1.67

Acq Cost (Down Pmt + Closing) $124,950

Cap Rate - 12.6%

COC Return - 21.3%

Since these houses/mobile homes/ duplexes are all on different tax ID's the banks are telling me that each parcel is a separate loan. Is there any way around that?

Let me know what your thoughts are!

Best,

Mark

[Jaysen Medhurst]

@Mark Patino, I recommend shopping around to different local/regional banks and credit unions. Many banks will role multiple properties into one loan.

A few red flags that I see right away:

1. As you mentioned the expenses do look very low. I'd expect closer to $45k/year (excluding vacancy). Especially since all the properties are spread out. You'll get no economies of scale, which means your expenses will likely run higher than normal.
2. According to those numbers, cashflow is ~$117/unit/month. That's a little lower than what I like to see. Perhaps there's opportunity to make improvements and raise the rents.
3. So, the purchase price is around $540k? The Cap Rate is up in the "war zone" range. Perhaps a function of the fact that this is a bundle of properties or the deferred maintenance.
4. Speaking of deferred maintenance, you need to figure in some immediate repairs/CapEx. There's always something. I wouldn't be surprised if you easily sink $30-$50k+ at the outset.