New Investor - commercial and residential units

[Drew G.]

Dec 30, 12:43 PM Vote
Hello All,
My wife and I are looking at two 3 unit buildings that are being sold as a package or they can bought indvidually. I have been doing a lot of reading and using the spreadsheets I found on this site to prodcue some analysis. If possible I would like to hear some feedback on the properties below:

Property 1: Listing price $149,000
2 Commercial Units & 1 Residential

Income: $17,499
Factored in a Vacancy/Loss Rate = 5% or $921

Expenses:
Taxes = 2200
Insurance = 700
Trash = 400
Water/Sewer = 1,000
Maint = 2,000 (high estimate)
Total Expenses: $6300
Expenses of % of Gross Income =39.20%

NOI = $11,199
Mortgage = $7,854
Total Cash Flow = $3,345 Cash ROI =7.37%

Property 2: Listing price $149,000
2 Commercial Units & 1 Residential

Income: $17,100
Factored in a Vacancy/Loss Rate = 5% or $900

Expenses:
Taxes = 2600
Insurance = 800
Trash = 400
Water/Sewer = 800
Maint = 2,000 (high estimate)
Oil = $3,900
Electric =$1,800
Total Expenses: $12,300
Expenses of % of Gross Income =73.33%

NOI = $4800
Mortgage = $7,854
Total Cash flow = (3,053)

Property 2 obviously does not look good on paper because of the expenses due to oil and electric.

She has them listed to buy both for $289,000. If you combine the properties they come out to a positive cash flow with expense at 52.2% of income. My thoughts were get the seller to come down on price so I can convert from oil to natural gas and also pass the electric onto the tenants to cut costs.

Any opinions on this would be greatly appreciated!!! Thanks

[Jeff Greenberg]

John,

In property 1 does the tenant pay oil and electric? I would agree with Uwe that your returns should be higher. There are passive investments you can get into for a 7% return. Is this in your local market? I assume you are planning to manage it yourself. You didn't say anything about the mortgage or your exit strat. Is this a full am loan that you plan on paying down and having a paid off property. If not you will be taking on a new job instead of putting your money to work for you.

Property 2 I ran the numbers and even if the tenants paid the oil and electric you still would have a meager return certainly below minimum wage. The debt service is also high. If this is a 30 yr am it looks like 5.8%. You should be able to do better than that. He would have to come way down and the market needs to be having the tenants paying utilities before this comes close to being a deal.

Don't sell yourself short. How much is your time worth??

Good luck

Jeff