WOULD YOU BUY THIS MULTIFAMILY? 7 Unit Building

[Cassidy Burns]

Good Morning BP,

Just wanted to run a deal by you to see if it is something you would purchase: 

-7 Unit Building: Blue collar town of 2,000 people.  Surrounding town is 30,000 population. 

-List Price: $259,900 (going into foreclosure so very likely for cheaper purchase price but for #s sake lets use this $$$)

-Units Spread over 3 Building:

-Building 1: 4- 2 Bedroom/ 1 Bathroom 800 sq ft units ($560/month)

-Building 2: 2- 3 Bedroom/ 2 Bathroom 900 Sq ft Units ($650/month)

-Building 3: 1- Oversized 1 Bedroom/ 1 Bathroom Unit upstairs. ($620/month)  Downstairs Commercial space that was used as laundry (not currently up and running)

Gross Potential Income of : $4,160/month

Expenses:

-Landlord Pays for all Water...... (this is the value add here) Quoted $2,500 to get separately metered.

-Landlord Pays for Trash ($60/month)

-I am underwriting at 50% expenses (still waiting for final P&L)

The value add items here are : 

-Water Separately Metered

-Laundromat up an running again

-Rents are pretty much up to market rents right now and for this area, will not increase significantly.  

So question is, is this a deal that you pursue?  Cash flow is nice.  Appreciation will be low to stagnant. Rents are to market.  But Value add for laundromat and/or water.  PLUS, I do think I can get this property for around the $200,000 mark.

Would love to hear people's opinions.  If you need anymore info please let me know.

Happy Tuesday.

[Jaysen Medhurst]

@Cassidy Burns, at $260k you're buying at almost a 10 Cap. What's the Cap Rate locally?

There's definitely opportunity to force appreciation by getting the commercial space rented and sub-metering water. What do you think those will bring in/save each month?

I share @Keith Jablonowski's concerns about the small town. What's the vacancy typically in the town? Will you be able to rend the commercial space? Look around the town, are there a lot of empty store-fronts? If so, that's a red flag.

Why is this property going into foreclosure? It should be cashflowing, right? Hopefully, it was simple mismanagement or some other problem of the owner. You really need to focus on your due diligence to make sure there isn't a fundamental flaw.

Finally, the fact that it's spread over 3 buildings would give me pause. You're going to get very few efficiencies of scale. This could actually be the Achilles heal of the property. 7 units with 3 sets of mechanicals? That might be killing the maintenance / CapEx budgets and making the whole property economically unfeasible.

Any opportunity to split the lot up into three, hold onto the most profitable one, and sell of the other two?