Deal on table, I'm leaning away from it, what do you think?

[Doug Scarano]

quad located in little Mexico in S. Jersey. $157,500. $3050/month rent, cash. Taxes, water, sewer, trash = $9000/year. Owner buys oil for heat, this year's cost ~ $4000. Seller financing. He wants $37,500 down. Finance $120,000 over 15 years @ 7%. Also new electric service on both sides(4 units). House needs some repairs ~ $2500. What do you think? Stay or walk?

[Joel Owens]

If you verified rents at 3,050 X 12 = 36,600 a year.

Since utilities are paid by the landlord I would use 60% costs.

36,600 X .40 (60% costs) = 14,640 NOI

14,640 NOI / 157,500 sales price = 9 cap Depending on the area of town could be a bad cap, average cap, or good cap. If the repairs are immediate they would need to come off of the sales price so likely looking at an 8 cap at current purchase price.

When tenants do not pay utility they consume 30% more on average. Pay special attention to the taxes, water and sewer rates, and heating. If those are set to jump higher then they could outpace the annual rent growth which reduces current cash flow each year moving forward. This is really why I do not like properties where I pay utility.

The 15 years is good as long as no prepay penalty. The down payment I would try to get down from 25% down as with a quad you should be able to get in at 20% down at a much lower rate than a 7% probably in the mid to high 4's. If you can go 10% down and get them in the 4's to 5's fixed with a 25 to 30 year amort. then it's going to your advantage.

Personally it would be a no go for me.