6 Units - I Need a Second Look

[Kyle H.]

Hello everyone!

I just came across a 6-family (6 1 bed 1 bath) units.  Here are the details:

Purchase Price: $119,900

Fully Rented: 2 long-term tenants

Annual Rent: $35,700 (35460 rent + 240 laundry)

RE Taxes: $1532

Insurance: $1489

Water & Sewer: $3750

Gas & Electric House: $3480

Gas and Electric Tenant: $4450

Maintenance - 10%: $3546

Vacancy - 5%: $1773

Total Expenses: $20,020

NOI: $15680

Cap Rate: 13.08%

Roof: replaced in 2013

2 furnaces: replaced in 2012

A few things to note.  The "gas and electric tenant" is used to describe what the current owner is paying for tenant utilities (not common areas).  He does not have to pay this, as there are separate meters, however, he charges additional money per month to give an "all-expense-paid" unit.  He actually profits $10-20 per unit when doing this.  But, I could choose not to do this, increase the rents slightly, and make a better return.

Some minor repairs include fixing 2-3 main entry doors, and the only major items are the windows.  I figure I can replace these slowly as units turn over, or get the owner to replace some before closing.

This rental is right on the bus line and is .1 miles away from a major area high school.

When units turn over, I could do a nice upgrade on the unit and increase rents nearly 50%.

My 4-family is less than 1 mile away, and this is where my property manager lives.  He takes care of my 4 family and could easily take care of this one as well.  That's why this is so attractive to me.

As of right now, the owner can come down in price.  Since this is over 4 units, it is obviously my first commercial property.  I talked with the owner, and he says his bank will probably do the loan, seeing as it is a very small, local credit union who analyzes the rental itself and doesn't focus solely on your personal debt ratios.  I mentioned to the owner that I didn't have the 20% to put down, and I asked him if he could provide a second lien and give me the 20% down.  As of right now, he said he would do that as long as the bank agrees.  I may be able to snag this property for $0 down and well surpassing the 2% rule (almost 3%!).

After paying the mortgage, it will be around $1000/month in cash flow.

Before I make any offers, I want to know if there is anything else major I am forgetting.

Any thoughts would be greatly appreciated.  If this goes through, I will officially be at 11 doors :) Woohoo!