13 units on the Eastern Shore (Maryland)

[Marylin OShea]

Hi everyone,

I've stumbled upon this deal that is not yet listed, consists of two converted buildings in a small town, 6 + 7 units on half an acre. I learned about it from the owner who is a fellow real estate agent and she's "done with it". Said she is too old and doesn't want the hassle, though she recently hired a new property manager she likes. Her now deceased husband was running their portfolio, he passed 6 years ago and she's been working on getting rid of all their properties since.

She sent me an older appraisal that got me started, shared the income & expense figures. I ran the numbers, see below - the expenses are almost too low, so first thing will be to do my due diligence.

On the plus side she is not in a rush, the property won't be listed for a while (if at all, if I can get in quickly with a solid offer).

Purchase price (est) $775,000

Units 13

Annual income $112,000 (assuming 7% vacancy, all units currently leased)

Operating expenses $39,000 (all electric on separate meters, heat is electric. Owners pays for water, sewer, etc. Includes 10% property management)

CapEx $6,500 (or $500 per unit) << is this too low?

Mortgage $54,000

NOI $73,000

Expense ratio 35%

Cap rate 9.41%

CCR 6.50%

DSCR 1.36

This is before seeing the property, but it seems to be C class in a B area, so opportunity for expandability with rents. I was told there is some deferred maintenance, but I'll know specifics when I see the place. Not sure if this may break the deal or not.

I expect to run the management once I get the hang of it, for now happy to pay for the continuity of property management while I "figure it out" and eventually scale back the W2 job.

Am I forgetting anything? 

Now this assumes 25% down at 8.50%. This would be my first commercial deal. I have no idea if my bank will qualify me, but I will try! I'm guessing if they turn me down 8.50% is too low for the hard money lender route... I have W2 & 1099 income, solid credit, home equity and brokerage accounts/retirement savings, and some limited rental history (my first deal is a SFH 2 years ago).

I've read about doing 75% bank / 10% second with seller, and "just" coming up with 15%. Anyone had success doing this?

Thanks in advance!

[Bjorn Ahlblad]

@Marylin OShea congrats on the find! I have a 12 unit two story on the West coast, in a small town with a lot of similarities. Mine might be older-built 1960-electric heat with all electricity paid by tenant. My guess is your expenses with proper allocations for PM, CAPEX etc will go up a bit but; still very workable depending on the new price. My actual expenses are are about 40% but I measure at 50% just to be safe.

Sounds like a live one! Run your numbers, if they work get it under contract, have it inspected, and try to see if this really can be a deal.