8 Family Unit - Good Deal?

[Amaf J.]

Good afternoon everyone,

I'm new to both real estate and to this forum. I've done a fair amount of researching which included reading books and viewing some investment videos. I want to hit the ground running so I did some research on potential opportunities.

I found a local property that's 8 units, newly renovated, brick building and it's completely vacant. Asking for the property is $550,000 and I plan on using a FHA loan to purchase the property. Property is located in an urban area (East Orange, NJ) with the possibility of section 8 being offered. They're stating based on their analysis that it's a 13.53% cap rate.

- 5 rooms, 3 bed, 1 bath per unit with 8 units

- Saying the market rate for each unit is $1,200 or section 8 is $1,632 

Here is a copy of the analysis that was sent to me:

Link to analysis

(If it's too small then I'll put it into an excel file)

What do you guys think about this deal?

Thank you all.

[Account Closed]

Hi Amaf,

First, I would like to address the FHA loan that you mentioned. As far as I know, FHA loans are ONLY available for 1-4 unit properties, otherwise that property is not eligible.

Next, as far as the asking price, you should run comps in your area for that $550,000 price and see if it aligns with other 8-units. Also check to see that the rents, given on the pro-forma, are also standard for your area. Be careful with the cap rate because that is based on 100% occupancy at $1,200 rent. DO NOT forget to account for less than 100% occupancy on your analysis (just for precautionary measures)...

If you are getting really serious with this purchase, verify all the information you can. Call to verify the taxes, trash, management cut (if you are going to use a property manager), etc. Verify all you can on the proforma as soon as possible, you can possible use your new numbers to possible arrange a discount. Get quotes from management companies in that area as well as account for maintenance and repairs (to your liking).

Lastly, account for the expenses you will be incurring before you acquire tenants. Depending on how long getting the units occupied takes, you could be paying out of pocket for a lot of things. Taxes, insurance, etc.

These are just my two cents, if I missed anything, tag me back and I will gladly respond.

Gino