Our First Multi-Family Deal. Advice?

[John McCormack]

I'd like to start off by thanking everyone who took the time to take a look at what I've listed below and offer advice, thoughts or even flat out discouragement! We appreciate it all. If it wasn't for the BP community we wouldn't have even come this far. First, a brief background on myself and wife (it was her idea to move further along with RE investing). My wife and I own 1 single family 3 states away from my primary that is cash-flowing approx. $300 p/month. We reside in our primary here is South Florida which our goal is to move out of and turn into a vacation rental with backup plan of long-term rental if that doesn't work out. We decided on a plan of buy & holds and looking at multi-familes to be owner/occupants. So those are our brief requirements. We've had much difficulty finding a multi-family that we ourselves would considering living in until now.

I know I'll be missing things for you to more accurately analyze the deal but I'm going to include the most amount of information I currently have and I look forward to you constructively picking it apart;)

The property has 2 structures. The main house is divided into two. One side is a 2/1 with loft. The other side is a 1/1. Then there is a separate studio attached to garage out back. The age of home is from 1935. Shared backyard courtyard. Wood frame/siding, asphalt shingle roof, central air in main 2/1. Window A/C in 2 other units. Lot's of character. Hardwood floors. Mix of electric and natural gas for water heater/stoves. Current owner pays water with 1 meter. Renters pay own electric. Property is 1 mile to beach, 2 blocks to gold course, 2 blocks from active main downtown area. However, it's in quiet residential neighborhood. Shared laundry (for now). Evidence of termites. No current yearly leases in effect with 2 tenants.

ASKING PRICE: $290K

RENT 1/1: $750

RENT STUDIO: $650

RENT 2/1 (we will be occupying for now) $1300

Willing to pay $280K. Running #'s below based upon that figure.

$280K

$56K down

P&I: $1200.00

$2700 Total Rents - 50% rule = $1350.00 - $1200P&I = $150

We've also broken the 50% rule down further with what we believe to be more accurate numbers:

TAXES: $279

INSURANCE: $279 (This is estimate as I wait to hear back from ins. agent)

VACANCY 10%: $270

REPAIRS/CAP EXP: $162

PROP MANAGEMENT 10%: $270 (We'd be managing but have this built in for the future in case we didn't want to manage)

Total: $1260.00

$1260 + $1200 P&I = $2460.00

Total Rent: $2700-$2460 = $240 cash flow.

CAP RATE 6%

GRM 12

CASH on CASH 5%

We realize that this isn't a great performer overall. The properties that have more desirable cash flow are not really in the more desirable neighborhoods. With this property we feel that we have more options/exit strategies. We see a lot of houses being rehabbed and sold in close vicinity. The main house 2/1 and 1/1 under the same roof could be joined to form a 3/2 again and sold or turned into a vacation rental. We don't seem to even have those options for the other multi-families we've looked out. They're multi's and that's it. With this we feel we can safely live here in the beginning and have renters pay most of mortgage while we look to our next property. Look forward to your thoughts.