How are the Numbers on this property?

Question

2 duplexes. 4 apartments. Both for $250k (this is a packaged deal). Owner will help pay for the closing costs.

A.) 800/month, $700/month in one duplex
	B.) $825/month $675/month in other duplex.

A.) $2400/tax per year. 
	B.) $2400/tax per year

Tenants pay hot water, heat, electric. All utilities. Tenants maintain property. Except for major stuff.

sewer & water -

A.)$90/month 
	B.) $110/month

insurance -

A.) $670
	B.) $670

Security - only two tenants total. Both in A.

may need a new roof on one. Both properties have long-term tenants. Rents can be increased by about 5% if i replace tenants.

After mortgages, insurance, etc. Owner states making income of:

Duplex A: $525/month 
	Duplex B: $325/month

Good part of the city. Lots of renters but I probably wouldn't replace tenants. Just increase rents slightly.

What can you tell me about this property? Advice? Suggestions?

Raymond B. · Answer

@Steve Candor,

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Shaun Reilly · Answer

Are you going to dump that much cash into it to help cash flow?

It works, but not my preferred method.

You generally hear people down on the area but if you can find solid cash flow and it is something that works for you then you do it.  I would try to get the guy down a little more if possible since the bigger the cushion you have the better if you do need to sell and to help with cash flow.

Steve Candor · Answer

@Shaun Reilly

Spot on for your assumption. It's right outside of that city.

I'm not looking for appreciation. If i get it. Bonus. Looking more based on safe and consistent cash-flow. It's in a pretty good area where there is high demand as the area is in nicer neighborhood. So finding a good tenant - i should have my pick of the litter.

@Ryan Halverson awesome. Would it make it better if I could change those numbers a bit? I'm hoping to give him a lot less of an offer closer to 10%-15% off. and I could do $100k down payment.

Shaun Reilly · Answer

Where are the properties?

They sure aren't in Boston, or probably an hours drive of it.  In Boston you would at least double that price and rents to find a place that was fit for human habitation, and that would be a deal.

Since you mentioned guys moving operations to CT I will assume you are closer to Springfield?

(As an aside how bad is MA for landlords if people are moving their operations to CT to make life easier?!?!?!?)

Around here those are actually pretty solid numbers.  Cash flow in MA is usually pretty terrible since prices are so high.  Of course that is a red flag to me as to what area you are in.  The sole reason people overpay here is because there is usually solid appreciation and they work on the bigger fool theory that the next dude will buy it for a lot more banking on appreciation even with little to no cash flow.

If you aren't in an area that will support that model you need to be more careful.

Bill Jacobsen · Answer

At the current asking price I see about a 7.4 Cap.  I like my Cap rate to be 3 percentage points or greater than my cost of money.  Therefore, if my cost of money is 5% I want an 8 Cap.  An 8 Cap would put the price at $232,800.

I would also like to know why the current owner is making so little.  Also, when is a new roof required.

Good Luck.

Bill

Steve Candor · Answer

not sure how to do the @ thing.@Jerry W.

Yeah, he said the new roof he would do for $3k added on the property. I can put about 50% down on the place.

Yeah, I read about my area and the eviction process is like 3-4 months from non payment. Crazy. NYC is even worse but most people don't want to mess up credit history (especially cosigners/guarantors - usually required in NYC).

I heard of a lot of landlords moving from Massachusetts to Connecticut for this very reason. One landlord I know said he doesn't even make leases in CT because it's easier to evict.

Jerry, the thing is that all the tenants in the current apartment are LONG-TERM tenants and 3 out of the 4 are related. I want to keep current tenants and increase their rents but not sure what power I have in doing so since, if they don't agree It'll be hard to evict them.

The going rate is higher in the area but I'm not sure how to increase rents.

Ryan Halverson · Answer

Here are the numbers I ran on it.

I would say no thank you.  If you decide to knock off PM fees or maintenance you would really corner yourself into not being able to pickup one later with ~$94/door/month.  I try to aim for 175-200+ per door per month especially for MFH.

Jerry W. · Answer

@Steve Candor To be honest I like your numbers.  The possibility of a new roof is not good.  Just using the 50% rule and amortizing $200,000 at 5% for 30 years I came up with $1074 per month payments that is $426 per month positive cash flow.  If you manage your self it will be even better.  Rates are horrible in my area so almost anything looks good to me though.

What I don't like is your area.  Your state has a reputation for being practically landlord hostile.  Evictions take forever and are very costly.  Be sure to be very picky about who you would put in there.  You might see how motivated the owner is maybe if you gave him full price he would be willing to take a 2nd mortgage for your $50K down at 2% with a 5 or 10 year balloon.  My amortization program is not running but it would be about a 11 or 12 year payout at $400 per month.

Steve Candor · Answer

@Bill Jacobsen

Not sure if it makes a difference. He paid over 300,000 for the combined properties. Around 5.25-4.75 interest.

How are the Numbers on this property?

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