Is this triplex a good deal?

Question

First of all, I absolutely love this site! Since discovering it few months back, I have learned so much from all the people who contribute here so selflessly! I am looking forward to learning more and contributing when I am able.

I am looking at a triplex in Atlanta metro area. Property is located in a good area. Here are the details:

• Built in 1965 - 4 sided brick - total rent  $1710 per month. All units are rented currently - new roof, flooring, kitchen cabinets and appliances.
• Two 2 bedroom 1 bath units renting for $630/month.
• One 1 bedroom 1 bath unit renting for $450/month.
• Water is included in rent. Current landlord claims water bill is about $100/month, which I will need to verify.
• Purchase price $90k - PITI around $600 per month after 30% down payment.
• No central cooling - window units.

I have never owned a multifamily property before. I am worried about water bill included in rent, and also what kind of tenant the property would attract due to lack of central cooling system (tenants use window units).

Please let me know what you think. Thanks.

Aaron Montague · Answer

Adjusting for your numbers, I see this place as a good investment.

I upped my monthly "general fund" costs to $200, added $25/month for outside lights and dropped the management fee to 5%/month.  I figure you'll take yourself to dinner once a month or so :)

My numbers come in around $434/month in cash flow.

The 50% rule is a great place to start, but like all "rules of thumb" it needs to be a starting point, not a final analysis.

I'd get this place under contact ASAP. Then I'd get those rents up to 650/650/475.

Edward Burns · Answer

The 50% formula builds in many items but is intended to allow a quick analysis of whether a deal has decent profit potential. It makes assumptions about taxes, insurance, vacancies etc. and it does not give you a detail analysis of a particular property.

In you case, it may be that you have yet to face replacing any major systems, but as a rule figure on a new roof ($8K) every 20 years (or $400/yr), HW heater every 6 years ($100/yr), HVAC systems and other big ticket items that have long term lifespans.   If you have not had to replace these yet, then yes your apparent cash flow will higher right now.  But if you do not budget for them and saved money towards them, you can run into financial difficulties when they occur.  I know you will think, oh well, when things get old I will just sell and let someone else worry about it, but if you note, experience investors here frequently indicate that a potential buyer check on the remaining lifespans and adjust their price accordingly.

Besides the above, high rent property and low rent property do not fit the model as well as mid-range rentals.

Kazi R. · Answer

Thank you everyone for all the great analysis of this deal. I was hesitant about this property when I started this thread, but now I am pretty convinced that this could be a good deal if all the major systems are in good shape and water bill is not excessive. I have made an offer. I will let you know if it gets accepted.

BTW, thanks for all the great posts about 50% rule. My take away from this discussion summarizes what @Aaron Montague said in his post:
	
	"The 50% rule is a great place to start, but like all "rules of thumb" it needs to be a starting point, not a final analysis."

Daniel Dietz · Answer

Lots of good feedback.

Disclosure..... I am new to this myself, just bought our first duplex. It brings in $1350 month, and we have 78K into it.

As to the '50% Rule' for expenses.... when I run our numbers, it usually comes VERY close to 50%. Of course for us, this is just projections since we are only a few months into it. We have to cover water/sewer, and I budget 15% of income for maintenance (about $2400 in our case). This might be high since ours has a newer roof, windows, furnaces, water heaters and aluminum siding etc... This might, no, likely IS a bit high, but I would much prefer to be pleasantly surprised than disappointed.

Dan Dietz

Kazi R. · Answer

I think assuming 50% expense is standard formula that's being used by a lot of investors when it comes to calculating cash flow, but it has not been true in my case at least when dealing with single family properties. I don't know about small multifamily properties though. I think this property is likely to cash flow lot better than $255/month. I would love to hear others' opinion about 50% expense formula though.

Frank Wu · Answer

It's not a good deal to me when you're only cash flowing $255/mo total for a triplex.

Kazi R. · Answer

@Kiran K Thanks Kiran. I am thinking about putting in a stipulation for the landlord to provide me the last 3 months of water bill documentation.

Kiran K · Answer

looks like a good deal rahman on paper, couple of things I will look for is water bill 100$ for three units is very low that bill alone can eat into your cashflow.

check the area out as Ali B is suggesting, if its not an OK area expect higher turnovers, vacancies.

Kazi R. · Answer

Thank you everyone so much for such quick responses!
	
	 @Gary Hurst 
	Yes Atlanta is great place to invest in real estate. I am skeptical about water bill as well. Will be sure to verify.

@Aaron Montague 
	Tax - Somehow I couldn't find the tax info on county tax commissioner's website. However I doubt tax would be more than $2.5k based on taxes on other similar properties.
	Sewer bill - I think water and sewer are billed together. I will check.
	Trash - County takes care of the trash (included in tax).
	Property management - I manage my own properties. I assume I would do the same with this one.
	Thanks for helping me out with the numbers breakdown.

@Edward Burns
	Good advice about heating systems. I will keep that in mind.
	
	@Ali Boone
	It's a MLS listing and will have it inspected if I decide to purchase it. This is a bit of a new area for me (not the typical area where I invest in), but my realtor tells me that it is a decent location.  I haven't done my due diligence yet - will walk away if it turns out not to be a good location. Thanks.

Ali Boone · Answer

Are you positive this is in a good area of town? Those rents, plus no central AC, plus that purchase price....to me that screams not a good area of town.

Also, was this an MLS listing? Have you had it inspected?

Is this triplex a good deal?

Most Popular Reply