Critique this property/introduction hybrid

[Travis Tindell]

Hey bigger pockets community! My name is Travis and I am brand new to this site. Just ran across it and have been well-rewarded with tons of useful information. I am currently in college pursuing a career as a mechanical engineer, thinking of going into oil (but not set on that part just yet!) I plan on investing in real estate once I have a full time job because I feel the security of being able to pay for whatever costs that arise out of pocket at any time will give me peace of mind. Anyway, that doesn't stop be from looking for deals as practice for the future! ;) Anyway, was looking at going to college at Texas A&M so naturally I looked into real estate in the area. I ran across this big ol' multi and would love to see more experience persons analysis to expand my own personal critique process. It is listed on realtor.com and the address is 2813 Cypress Bend Cir., Bryan TX Once again, hello everybody! Can't wait to hear your opinions and make sure you keep an eye out for me as there will be more from me in the future!

[Sharon Tzib]

Hey Travis! Well welcome to BP - great to start off young with being interested in REI. So I took a look at the property, $23,625/door. You are correct - for non-owner occupied above 4 units you cannot get FHA financing, so the 3.5% is out. More than likely, too, is the 5%. Commercial loans are normally at least 20%, if not 25%. So, the mortgage payment would conservatively be $815 20% down @5% 30 years.

Based on current rents, and subtracting 60% operating expenses (which includes taxes, insurance, maintenance, water/sewer, management, vacancies, capex, and other misc expenses like yard care and legal fees), right now the NOI (Net Operating Income) is:

$3120 - 1872 = $1248

$1248 - 815 debt service = $433 cash flow or $54.13/door - not very exciting

$433 x 12 = $5196 / $47475 (25% down payment & closing costs) = 11% ROI

$1248 x 12 = $14976/$189900 = 8% cap

The numbers only scratch the surface, however. You need to take a closer look at the location too. It appears this complex is located in an area with above average crime and below average median household income. I would venture to say this is at a minimum a C Class property, possibly a C-.

Unfortunately the listing does not specify the unit mix, so I have no idea if these are all 1 beds or 2 beds, but with current rents at $375 & $395, I would assume 1 beds. According to rentometer.com, median rent for 1 beds is $480, so there definitely could be room for improvement on this one.

A few caveats. These numbers are based on full asking price, which I would not offer based on the location, condition of the building (the pictures show some deferred maintenance), and the repositioning with rents you'll need to do.

Secondly, I assume you are just practicing. For your first deal, I wouldn't recommend a C Class 8 unit, unless you had an experienced partner. Also, with these kinds of buildings, you need to make sure there are property managers that will even take them on, and you need to see what the surrounding buildings are like, since they can drag down your property if poorly run.

Lastly, you would always want to verify all of the expenses - 60% is just a general first look qualifier, and actual expenses may be more or less.

Anyway, I went a bit overboard on this post just to give you an idea of the things you'd want to look at. Let me know if you have questions.