Potential 7 unit

[Michael E.]

Hello everyone,

I was looking for some feedback on a potential property in Maryland. There are 2 buildings, a duplex (1 BR + 4 BR) and a 5 unit (1 Efficiency, 1x1 BR, 2x2 BR, 1x3 BR) for a total of 7 units. Both buildings built in 1950's, which as far as multi-family props in this area goes, is on the newer side.

Currently fully rented with mostly long term tenants, bringing in around $5100/month plus ~$100/month from coin-op laundry. Purchase Price 405k. Assuming a loan of 20% down at 5% for 20 years.

I added up all the expenses and estimate them to be around 55% of the gross income, so around 35,000, but this includes a lot of guesses and fudge factors. This includes 5% vacancy, 8% property management, taxes, insurance, lawn & snow removal, pest control, trash removal, utilities for common rooms, cleaning/repainting at tenant turnover...as well as guesstimates for capital reserves ($750/unit/year) and repairs ($400/unit/year). 

I don't have much experience to draw upon to know if the cap ex, repairs, and maintenance estimates are reasonable, so they are really nothing more than an educated guess. The sum of my estimates for Cap Ex, Repairs and Maintenance is coming in around 23% of gross income, so I think that's on the conservative side, so certainly depending on how much you want to play with that number, that will change the numbers below...

Year 1 Metrics (all figures are on an annual basis):

Gross Income = 62,400

NOI = 27,788 including capital reserves (33,038 w/o)

Debt Service = 25,659

Before Tax Cash Flow = +2,129 including cap reserves (+7,379 w/o)

Cap Rate: 6.6% including cap reserves (7.8% w/o)

Cash-on-Cash: 2.2% including cap reserves (7.6% w/o)

Expenses = 55% of gross income (including cap reserves, vacancy, and management)

Monthly Rent = ~1.3% of purchase price

Assuming rent, expenses, and appreciation are all 2% (conservatively), here's the long term projections for Buy and Hold with no refinancing:

Year 10 IRR Before Tax: 13.2%

Year 20 IRR Before Tax: 12.31%

Any thoughts? I'd really appreciate your feedback. Thank you!