Rental Deal Available

[Sean MIddleton]

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*This link comes directly from our calculators, based on information input by the member who posted.

Above is a Rental deal that is being sold at full ARV.  The price of the house is $115k and the monthly rental income on this triplex is at $2100 per month before expenses renting out 3 x 1bd 1bth units at $700 per unit.  It already has property management in place and has 1 of the 3 units rented out currently.  This property has just been renovated and is being sold as turn key. When running the numbers it seems like a great cash flowing property but buying at full ARV is where I get concerned.  The property is in a D class area which is a little out of my comfort zone but the cashflow seems extremely good.  I am a new investor looking to strike my first deal.  One of the other concerns I have is the property is only a 680 sq ft house with a 680 sq ft basement.  This seem rather small to be converted into a triplex.  So, Im a little nervous the units wont actually rent for what they are asking and/or I wont be able to fill them with decent tenants.  Help me make sense of this deal as I am interested but am nervous about moving forward.  Look at the deal above for the numbers.  Thought????

[Evan Polaski]

@Sean MIddleton, I am going to disagree that Class D areas are more cashflow.  They are able to pencil into more cashflow if you use the same assumptions you use for Class A and B and even C properties.  But Class D areas draw class D tenants.  Class D tenants typically turn over more frequently and are rougher on your units. If you require standard tenant qualifications: clean background, no evictions, good landlord references, and 3x rent in income, you may have longer vacancy with each turn.  But even if you have tenants readily available (doesn't sound like it given that only 1 of 3 units is rented), in my experience I lost a lot of "cash flow" in frequent turnovers on my roughest properties.  

I am talking in very broad brush.  You also have some very respectful, caring, long term tenants in Class D areas, as well, but as a proportion they are fewer and further between.  

Then you have Class D properties, which will have more Capex. This is a risk that is mitigated with a thorough inspection. Looks like your roof is new, but what about HVAC, water heater. Is foundation in good condition, windows? Plumbing (primarily what is behind the walls and underground), Electrical? Did the work get permitted? Was the place gutted and everything new, or was it new cabinets, appliances and paint?

Lastly, per your calculator: you have $5 RET and $8 INS.  I would double check those, since you are saying you only spend $60/yr in real estate tax and $96/yr in insurance, both are very low in my experience.