3 Unit property near major University in Philadelphia

[Pierre Streat]

Hello BP Family,

I was hoping to get your opinion please on a potential deal I am thinking of pulling the trigger on. Any college town Philadelphia investors out there?

So this is a 3 unit prop near a University in Philly with a price of about $275k. It is pretty much turn key with new flooring, walls, finished basement with washer/dryer/dish washer in each unit. Still need to get more info on the quality of the roof though and will be getting a contractor to look at it over the weekend. Bathtubs probably need caulking and I am getting the seller to fix all the windows, doors, downspouts, siding, countertops and HVAC.

Down Payment & Closing: $84k

Current rents: $2500 per month but should be about $2900 per month come Aug 2016 when school year starts up again

Prop. Management fee: 1st month's rent for finding new tenant (which will probably be every year since student housing has high turnover) plus 6% management fee

PITI: $1457 per month

Insurance: $1400 per year

Taxes: currently $2600 per year but apparently will rise to $4305 in 2016 due to higher assessment (current owner home improvements it looks like)

Vacancy: conservative 5% ($1500 per year) since this is student housing and probably will be filled easily 

Water/Sewer/Garbage/common electric: $2750 per year

Cap Ex: 5% of rents ($1500 per year)

Repairs: 5% of rents ($1500 per year)

Annual Net Income @ $2900/month rents: $3550

Cash on Cash Return: 6.31% in 2015 but will drop to 4.26% in 2016 when property taxes go up (comparable CoC is about 7.95% in 2015)

Cap Rate: 7.37%  (comparable cap rate in area is about 8%)

Would anyone buy this deal? Cash on Cash seems low to me but unsure if I am overestimating my costs here. How would you tackle the property tax increase issue? Can property taxes be written off? Am I estimating too much for Cap Ex? This deal looked pretty good before I factored in the Cap Ex and found out just yesterday that taxes would almost double. All thoughts and advice is greatly appreciated. Thanks.

[Jeff B.]

I rented to students - - JUST ONCE - -.  They had no respect for the property or even each other.  Sold the unit and relocated my investment to draw families with kids.  Working out well now.