My First Deal - 8 Unit Analysis Help

[Alex Nickla]

Hey everyone! First post here as a pro member!

My name is Alex Nickla and I am the Team Leader a Group here in Northwest Indiana, just outside of Chicago. I am 24 and lead a team of 4 agents who do about $20 million a year in sales, and I am at a point where I am ready to purchase my own properties and start my portfolio. 

I need some help and opinions on a deal here in my market. It's an 8-unit, amazing location, below market rents, solid building, right in my market. These deals are basically impossible to find in my market. I live in Crown Point, IN and my office is right in downtown. I would love some feedback on what anyone thinks about this deal.

A friend of mine is representing the seller and told me that $615,000 would get the deal done. They're asking $650,000. Market rents for buildings like this are $925-1050 for 2 bed/1 baths. My goal, would be to rehab each unit 1 by 1 over time and get the rents up. Our market has been growing very quickly as suburb of Chicago. Our city doesn't like multi-family, so these deals are hard to come by being so close to our downtown. 

The broker shared this document with me which does a good job explaining the details.

Here is the problem I have. I wouldn't be comfortable at this particular time purchasing the building alone, with $150,000 down plus some rehab costs (foyer, flooring, counters, small cosmetics). But I think the deal has me emotional to find people to parter with because it is so rare to find. By the time I'm done analyzing this, it'll probably already be gone. I am stuck between purchasing 1-4 unit properties (my goal is three this year) that I can by myself or with 1 of my mentors (who has agreed to partner with me) and BRRRR, or syndicating this deal with 3-5 guys.

My long term goal is just buy and hold properties, and I have no intention of stopping. In our market, home value have increased substantially and will continue to do so with so many people moving out of Illinois into NWI. So buying in my market is a good idea. Great schools districts, proximity to Chicago, taxes, low crime, etc. So I just don't know if it makes sense to put this deal together with others, or start with less units and less invested to gain knowledge and experience. 

Any advice on this would be amazing. I appreciate the input and help! 

Thanks,

Also, feel free to contact me if you'd like. I will gladly share my info.

[Jordan Callaway]

Alex, I looked it over, and it looks like (with all due respect to the listing agents) the expenses are understated or unrealistic. Their expenses are in the 30s percentage range... They could be as high as 50 percent in my opinion. Specifically, I'd add into the underwriting a management fee of 5% (even if you're managing and paying/not paying yourself - any bank will add this in anyway in case something happens to you and they need to make sure the property stands on its own), a cleaning/decorating fee for turnover another $300 per unit, a miscellaneous/reserves fee of $300 per unit per year and maybe even consider adding a janitor fee, although this could be covered by manager since it's 8 units only... Also, vacancy is 5 percent, is that accurate for that market? Sometimes people are occupying showing 100 percent occupancy, but only 80-85 percent of the rents arrive, just make sure to double check the rent deposits are the same as the income shown in the marketing book. 

As for the question of buy this or buy 4-unit? House hack is great for you b/c you're still in 20s non-married (I think). Great way to get in with less money down, live in for a year if required by lender, refi to investment loan after improving condition and rents, move on to the next one... A good friend of mine has done this four times already and has 15 rents coming in now, lives in the 16th (though you can only claim residence in one, so be careful not to lie to the banks, they'll find out).

That being said, there is a reason 25 percent down payment is required for outright investment properties, may not be a bad call to just keep hustling until you can flip your way up to that down payment or bring in a partner as you mentioned. Many people are interested in real estate and have the money but don't have the time or know-how, so you could be a great partner for someone! Keep it up though! I know this didn't help you decide which route to take, but good luck!