Commercial Property Deal (Good Deal or Bad Deal)

[Rodney Buford]

BP Colleagues,

I am hoping to get some input on a potential off market deal that I am struggling to pull the trigger on.  I am over analyzing this and is causing me to confuse all of the numbers.  I realize at the end of the day it's a decision I need to make but would love feedback from some experienced colleagues.

Class C property

Property - 8 Unit complex (6 are rentable, 1 totally gutted (~$25,000 rehab), 1 used for laundry and small office)

4 units up / 4 units below

All units 2 bd / 1 ba 

Current rents (6 units) - $425 (Market rent on the low end is $600, average $670)

Current Income/Expense (From 2018 taxes 8825 Income and Expense form)

• 2018 Gross Rents - $30,856
• 2018 Expenses - $25,629 (this is like 80% of rental income going to expenses which concerns me)
  • Tenants pays (Electric, Gas)
  • Landlord pays (Water, Trash, some electric for outside lighting)
    

Original asking price was $198,000 (based on an appraisal they had done this year)

• New Roof this year, Windows 3 years old, Newer hot water tanks, HVAC is older (but the person who owns these is a HVAC technician)

Comparables from appraisal 

• 8 Unit - all 1bd/1ba - Gross Income $38,400 - Sold Aug. 2018 $265,000
• 8 Unit - all 1bd/1ba - Sold July 2018 $270,000

My initial thought would be to BRRRR this but would need to get hard money or get a rennovation loan from a bank to get Unit #7 Rehabbed fully and rented, and as tenants turnover slowly start to update existing units and raise rents. The challenge with the Refinance is it only gives me 6 months (hard money) to improve the complex which I could get unit 7 done and potentially raise a few rents depending on leases but probably not enough to make a big impact on the appraised value. Using the BiggerPockers calculators I don't see the Cashflow immediately but could potentially see this change in Year 2 on.

Sorry for the long message, as you can see I am probably complicating this but fear can cripple a person but trying to push through and grow as a person.

Thank you in advance for any feedback.