9 Unit Multi-Family Deal -Upstate NY

[Paul Cox]

Hello my BP family...

I am looking at a deal that my realtor just brought to me. It's a 9 unit (all 1/1) 3 story building in a B- neighborhood. The building was built in 1853 but has been mostly updated throughout the years. This is a very common theme here in Upstate NY. There are a number of big big homes that have been converted to multi-unit dwellings over the years and none of them are newer than the 1940s. So though I've looked, all the multi-unit homes in this area fall into this category.

This home is not currently listed, but the owner of the home is a realtor and retired HVAC/Plummer that want to travel more and lessen their landlording experiences. I took a walk through last week with the owner and realtor/new property manager and today I just received some of the numbers I asked about before putting this out there. Based on my walk through, my biggest upfront concern is that 4 of the nine units are still wired with knob and tube wiring for the lighting. He has wired in GFIs in the bathrooms and kitchen as well as for the refrigerators. I'm not familiar enough with code right now to know if this is alright or not. My next step is to go through with an inspector/contractor.

Here are the numbers:

Asking price: $250,000

Rental Income:

2010 = $39,550, 2011 = $39,111, 2012 = $41,990, 2013 YTD = $33,074

Rent breakdown by unit:

1 - $450, 2 - 500, 3 - 450, 4 - 425, 5 - 425, 6 - 450, 7 - 450, 8 - 425, 9 - 375 (more of an efficiency apt)

Expenses:

Taxes: 2010 = $12,524, 2011 = $12,110, 2012 = $12,123, 2013 = $12,732

Utilities: 2010 = $1075, 2011 = $1378, 2012 = $1208, 2013 YTD = $865...Owner only pays for hot water (gas) in the two top units and for common area lighting and heat. Every unit has separate electric/gas meters and hot water heaters except for the top two units which use a common hot water heater.

Insurance: pretty steady at $1740/year

Snow Plowing for 2012 cost was $600

Vacancy: currently two units (5 and 6)have been vacant the last two months, but the new property manager just got both of them leased today. Not sure of the vacancy rate for the area but have asked my broker and was planning on using a 7% Vacancy rate, but that may be too low...thoughts?

Maintenance and Repairs - 2013 YTD = $4168 which included a bathroom remodel and new flooring in Unit # 3

Property Management - still in negotiation but thoughts on a whats standard out there for mutli-units?

My assessment from my walk around is that all the units are in decent shape, though there are two units that have no understanding of what the word "clean" means, but they pay their rent faithfully, according to the owner. He'd like to see them move and do a clean out and clean up and re-rent but we'll see.

Based on what I've been seeing in the paper for 1/1 units in the area, the rents are below market rates and could be raised gradually. I'd like to get at least 8 of them up to $500/month over the next two years.

Financing:

I have not gone to a commercial lender yet as I was waiting for the numbers given me today, so unsure of what mortgage rates/years would be on this venture.

So, any feedback is welcomed and appreciated...

Thanks so much

Paul

[Joel Owens]

I will take 425 a unit X 9 = 3,825 month X 12 = 45,900 potential gross income

With a building that age I bet there are big issues behind the walls with electrical, and other things asbestos, etc. so I would go 60% annual costs for property management, vacancy, and O and E.

45,900 X .40 (60%) costs = 18,360

At a 10 cap that would be 183,600 purchase without immediate deferred maintenance which would come off of the sales price. Other things is if this building and area has rent control which will severely limit future cash flow growth. Also if you have section 8 or other state funded tenants I have heard nightmares from other investors in New York where it took 3 months to get them out.

Verify the sellers tax transcripts to the IRS and not just what they give you. 20 to 25% down is typical and a 25 year amort. with a rate around 5%. If you can get the seller to hold a 10 to 15% second loan then you can increase your cash on cash returns and put less down and hold more for reserves.