Is this a good deal? 8 unit rental property @ 350k

[Andrew Michaud]

I am looking to purchase an 8 unit apartment building in a good area. Purchase price is $350k, with 20% down puts me at $70k invested (before closing costs) and $280k financed for 15 years. Property gross income is $66k/yr, net income AFTER mortgage is about $30k/yr with room for repair, vacancies etc. I feel like this is a decent deal, getting about 45% cash on cash return per year and getting initial investment back in a little over 2 years while mortgage is being paid for by tenants etc. I feel like the numbers work but I am a little sticker shock on the purchase price. Thats a lot of money. Tax value is right at 350k, so it seems to be a fair price. Just a lot to bite off. I'm a little concerned if I purchase this one, that will keep me from purchasing more next year once I get a whopping 280k owed to the bank. I know many surpass that x10 but it just seems like a lot of money. After 2 years I get to put about 30k in my pocket and after 15 years I could have $450k net from this account plus 280k mortgage paid off. Price still worries me a bit as its a lot of debt to be stuck with for awhile. Thoughts on this deal? Thanks!!

[Joe Arida]

Expenses

Property Tax - 7,500 double check assessed value as this could go up significantly after you purchase

Insurance - 3,000

Water/Sewer/Trash - 1,700

Electric/Oil - 3,500

Cable/Internet - 1,800

Lawn/Snow - 1,000

Repairs/Vacancy - 3,000 - this is super low. 4.5% for BOTH repairs and vacancy combined? Also you have No Capex bucket. Generally you'll want to see 5% each for Repairs and Capex, then 6% for Vacancy (even 8% which is about a month). This is a rule of thumb as you'll have months/years that are higher and lower than those numbers. This puts you at

  Repairs: $3315

  Vacancy: $4000 (6%)

  Capex: $3315

  (Total = $10,600)

Property Management: 10% ($6630)

Total Expenses - $23,200 $35760

Mortgage - $22,000 - Not sure what your interest rate is but for a 15 year, $280k loan at 6% you're looking at $28,344 per year. 

New net: $2196 

However, this depends on your goals. If your goal is to have a paid off asset in 15 years, that will then be a cash flow monster with return on equity (not counting appreciation) at almost 11%? Then yeah I would say it COULD be good deal depending on a couple things below. If your goal is that you're expecting $20k per year cash flow right now then that seems wildly optimistic. Expenses will come up and they will be more than you have allocated in your numbers.

One thing: can you cut the cable and just get internet and Hulu? That seems like it would be cheaper than the $1800 per year.

One more thing: not sure where you're getting $1000 per year for snow removal and lawn care but that seems REALLY low. If there's a parking lot that you're having plowed I'd anticipate at least 10 or 15 times that amount...

As far as property management, you could self manage if you want, but factor it in to your numbers so if you decide you HATE property management, or you no longer can do it for some reason, you know where you're going to be at. 

Think of the possibilities though: could you allocate another 2 (or more?) units to travelling nurses to raise the gross income? You say there's long term tenants, are rents below market? Can you cut expenses anywhere (utilities would be the big one--the cable would help too).