Triplex, Possible First

[Van Doan]

FHA 203k O/O in a C+ revitalizing neighborhood. C property. Comps are going for 200k or more.

Price: 150,000

Repairs: ~20,000 rolled into the loan

Down: 3.5% 6000

Premium: 795/mo

Insurance: 33/mo

PMI: 175/mo

100 years old

GMI: 1900

Annual Taxes: 2200

Maintenance: 10% 188/mo

PM: 10% 188/mo

CAPEX: 10% 188/mo

Legal/Accounting: $50/mo

Vacancy: 5% 95/mo

Gas/Water/Elec: To be submetered

Sewage/Trash: 50(?)/mo

Cap rate: 6%

Cash on Cash: ?

50% rule: 147/mo

Is the price in the area just too high or am I just overestimating expenses? I've been looking for 4 months and this is the only thing I've seen that's even remotely hitting the 1% rule. It seems like going with the stock market is the wiser choice here, but this property seems undervalued compared to comps.

[Grace Widdicombe]

Hi Van,

I didn't see a reply. Did you get some help? gross rents = $1900/mo and the asking price was $150k. Therefore it was at 1.27%  Yippie!   Another great factor is the very low down payment of only 3.5% (of both the price of triplex and the repairs!) = $5950. Hooray!

The first Cash = $6k 

Your expenses you put down are worse case scenario, and I must say that I did the very same thing when I bought my 4-plex two years ago.   

If this a tax return onto itself, like a partnership llc, then yes you 'll probably have a $500 to $800 tax bill for it at end of year, depending on how good you keep track of records. You'll also have the state's business taxes each year. (Oregon has them at least.)

Here's my math for you: Except for: GMI / CAPEX / - to what are you referring?

• Income: 22,800 (annual)
• Occupancy (95%): $21,660
• Maintenance - 2166.
• Reserves - 2166
• Accounting - 600
• Sewer/trash - 600
• Prop Tax - 2200
• Insurance - $396

------------------------

• NOI = $13,532.

Your Deal starts off with the best of all worlds and should have great cash flow. The Net Income is figured before the payment to the bank. You take the Net income and divide it by the sale price. That = the CAP Rate. $13,532 / $170,000 = 8% CAP Rate

Since you are paying a bigger chunk back to the bank this will affect Cash on Cash, 

You're paying less cash out in the beginning, but paying more out in the payments. However, if you are getting a low interest rate, that is all the more reason to take advantage. 

• I did a calculation for a 30 year loan at 4.5% interest on $164,000 present value: Gives payments of $830.96 per month for 30 years (includes interest).
  
  • Payments = $830.96 x 12 = $9971.52 
• 13,532 - 9971.52 = $3560.48 = Cash made first year. 
• How long does it take to make your cash back? 
• Cash down = $5950 / $3560 = 1.67 years!  Very good! After 1.67 years it's profit!!!

I have a form that I created for multi-plexes and mobile home parks that I could send you if you are interested.  

One of the common mistakes I see new investors make is combining monthly figures with annual figures, and another is counting the same expense twice, not knowing what the expense is referring to. 

The calculations only work if the information is good. The information is only as good as the due diligence. It takes a lot of interviews.  Again, I did not include the two expenses which didn't seem to belong to me. You may have to add them back in.

What happened to the deal? 

Best wishes in your investing! I'm heading to Tacoma on the weekend, I'll have to check out the area!