Newbie Analyzed a south Florida Triplex. Did he do it right?

Question

Hi everyone!

I'm new to the REI game. My plan is to buy and hold multiunit properties here in southern Sarasota County.

I ran across a tenant occupied triplex listed at $225k. It's been on the market for 119 days so I'm hoping the number is flexible.

I checked it out in person with my realtor. The units and building are in surprisingly good condition. Well maintained, no red flags, clean and nothing in desperate need of repair. The property is abutted by two empty lots which gives it a sort of private feel.

Current per month rental income is $1975. I spoke with my property manager and she said that she thought she could get around $2275 with a little updating.

I ran the numbers through a SFH Analysis spreadsheet as well as the bigger pockets rental analysis calculator and they both kicked back COC ROIs of over 10% That's with a 30 year mortgage at 4.3 percent 20% down and annual taxes of $2268 and insurance at $700

I have the cash on hand for a 20% downpayment.

Is this a good deal? Am I missing something? Would I be better off spreading my down payment cash among multiple SFHs? DO you need more information?

Any feedback is greatly appreciated! Thanks so much!

Justin Jocewicz · Answer

@Tristan Wheelock we have to look at where things are right now.  $1975/month and $225K.  Gross CAP is 10.5%$1975 *12/225K

Real NOI CAP is 6.5%$1234.5*12/$225K

$1975- 197.5  PM (10%)-  189 Taxes (2268/12)- 58 Insurance (700/12)-  98.75 maintenance (5%)- 98.75 repairs (5%)- 98.75 vacancy (5%)

= $1234.25

Cash flow is $212.25$1234.25 - $1022

The above minus debt service @20% down ($180K financed) and 5.5% 30 year amoritzation

If you CAN raise rents and CAN lower the price, then this looks good. Right now, I'm not sure if I would want to deal with three tenants for $212/month :-). Just my .02.

Benjamin Pekarek · Answer

The only problem I see is the financing, and no mention of reserves. You haven't mentioned unit mix, so I can't say whether or not your property manager is right or not (anybody but All County!!!!) The market rent in Sarasota, (not Venice, not Englewood, Sarasota) is $1.00 per square foot, per month. If you have the property deeded to an LLC, you're not going to get a mortgage for 4.3%, and believe me, you want to have that deed in an entity! Plan on 7-11% interest. @Charlie Fitzgerald with Civic Financial might be interested in something like this, or your preferred private/hard money lender.

Rethink your reserves. If and when something happens, you want to have the money on hand to make the repairs without hurting yourself. Put at least 10% of gross rents back, and DON'T touch it until that time comes.

What are you paying for management? We charge 5% for leasing, and 5% for management, but we only work with investors, and only if you have two units or more (i.e., we're cheap!). Be sure you're not paying more than 1/2 the first month's rent for leasing, and no more than 10% per month for management, or you're being taken to the bank. If you're being charged more, call around for other property management offices - there's Douglas down south, Jennette, Rossi, Suncoast, SML, Florida West Coast, RNR (ME!), Michael Saunders, Relax Realty, and a host of others based in Sarasota. Your property management company is going to make or break your investment. Make sure you have the right manager before you buy. Better than to have someone come in and charge you to clean up their mistakes.

I'd be happy to look over your real numbers if you send me a PM.

Adam Bartomeo · Answer

I am not as familiar with the BP rental calculator but I know that the flipping calculator leaves out several expenses.

There are some expenses that you didn't mention: vacancy, property management, lawn care, maintenance, and capital reserves. When I add in these expenses I see the property having negative cash flow.

A lot of new investors like to skip over these expenses because some of them may or may not come to fruition. You may or may not have vacancy and you may or may not have maintenance. But, you should always error on the side of caution and add these into the expense column.

Be weary of anyone that tells you that you can raise the rents. Although this may be true you should not pay based on your hard work. If the seller wants more money for the property let them raise the rents if it's that easy.

Tristan Wheelock · Answer

Adam Bartomeo howdy. Thanks for the reply! I have vacancy rate set at 8 percent which works out to about one month out of the year, I have property management set at 10 percent of income, Maintenance and and repairs are factored in at $1200 annually with $10k set aside for improvements and CapEx.

If I can get the property for $205k plus $5k closing costs that apparently works out to a cash on cash ROI of 10.37 percent.

Matthew Murphy · Answer

If they acccept your lower offer, minimal updating to increase rents...It might not be a bad deal. Good luck!

Tristan Wheelock · Answer

Thanks for all the thoughtful responses! I think I'll try and throw a low offer and see if the owner bites. Excited to get started!

Charlie Fitzgerald · Answer

I'd be glad to look at this for you.  We're going to be a lot easier for you to access capital with, but you're going to be looking at 9-10% rates (interest only payments).

Thanks for the mention Benjamin!

Adam Bartomeo · Answer

Got it.

I am more conservative on my properties. Not sure why you aren't including lawn care. Are you including it in the $1,200 for maintenance? If so I would rethink that. Lawn care is about $1,000 per month.

Over all, if you got it at $205,000 and there are weren't many repairs it seems to be good. I'm just south of you and it is hard to even find these deals.

Justin Jocewicz · Answer

And just so I don't get crap, CAP should always be monthly NOI *12/PP.  I have talked to some who do not do it like this, which is why I differentiated :-)

Newbie Analyzed a south Florida Triplex. Did he do it right?

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