HAVING SECOND THOUGHTS - NEED PURCHASE ADVISE

[Jean-francois Ndomb]

Hey BP,

I am in the process of making a final decision about buying this 4 unit flat, independent layouts under the same roof. The numbers from last year that I got from the seller are in the table below. With all inclusive, the cash flow (not net) is $1,740. The asking price is $71k (Worst case scenario). I did my number with the recommended percentages and end up with a net cash flow of $400 for the 4 units. I had a conversation lately with a friend of mine who is a successful investor, owns over 20 properties. He is well seasoned and does a lot of his stuff himself. He thinks this is not a good enough deal, because if you separate the units, you are only getting $100/Units cash flow, which I agree is not good enough. How ever, I am getting a FHA loan, low down payment, and will live in one of the units myself and will be doing the renovations and the maintenance myself for the first year. On the negative side, last inspection the seller got in August 2015, mentioned roof needing replace or repair in the next 5 years or so, some minor waterproofing in the basement will be needed ( I can attend to that myself). One of the unit's AC unit is down and it is causing tenant to use electric sources of heat, hence raising the electric bill out of the norm. And the property ended up being appraised at $86K. Please look at the numbers and give me your investor's opinion so I can make a sound decision on his buy and not based on my excitement of ownership.

Thank you in advance for your time. 

Yours in success,

JF

[Marcel Theisen]

@Jean-francois Ndomb

You have budgeted 5% for repairs. If it were a turn-key property that might be realistic but you have already identified some deferred maintenance (AC, basement, etc) so I would use at least 10% for repairs. On your spreadsheet you no not have any line for CapEx, you will need to budget for new roof and other major repairs. This article gives a good overview of CapEx.

How to Estimate Future CapEx Expenses on a Rental Property

Based on the numbers you posted, I don't see a deal there since expenses are too high.