Wisconsin 8 unit deal analysis

[Michael Brunner]

Hello,

I'm looking for some guidance analyzing my first greater than 4 unit deal.

The property is listed slightly under 900k. On the same property, there is a brick 4 unit and 2 separate duplexes for 8 units total included in the deal.

Below is the P&L the realtor just sent me, along with the rent roll.

To me, right off the bat it seems like they are really low balling the expense side of things (not taking out for vacancy (though they claim vacancy is never more than 1 month, so should we remove 8%?) or capital expenditures, etc.), so I'm not sure how much I trust their $62,8xx yearly profit projection. However, using the 50% rule and checking out some online commercial loan calculators, I believe the deal could work, depending on what kind of interest rate I can get.

Please correct me if I'm wrong. Most banks would require 20%+ down (~$180,000) on an 8 unit property, right? While I don't quite have the down payment amount saved up right now, I'm hoping to team up with my family (1 aunt and 1 uncle, they both own rentals) in some kind of joint venture deal where they bring a larger percentage of the down payment funds to the table as silent partners and I manage the logistics of the deal. Has anybody done this with family before? If so, would you recommend it?

Assuming the family deal falls through, what kind of alternative financing would you recommend I look into?

Finally, do people also use the 1% deal for more than 4 unit properties? If so, it fails that test.

"Expense/Net Sheet

Monthly Income $7,070.00

Monthly Expense 

Utility $190.00
Lawn Care/Snow Removal $25.00
Trash Removal $67.00
Advertising $0.00 Craigslist and signage in yard
Insurance $235.00
Odd/End Repairs $75.00
Total $592.00

Yearly Annual Income $84,840.00
Yearly Annual Expense $7,104.00

Property 2014 Taxes $14,844.46

Yearly Profit $62,891.54

Unit Bedroom Bath Stove Fridge Dishwasher Microwave Washer Dryer

409 #1 2 1 Y Y N N N N Y 2008 2001 2002

409 #2 2 1 Y Y N N N N Y 2008 2001 2002

409 #3 2 1 Y Y N N N N Y 2008 2001 2002

409 #4 2 1 Y Y N N N N Y 2008 2001 2002

401 3 2 Y Y Y N Y Y N 1997 1997 1997

403 3 2 Y Y Y Y Y Y N 1997 1997 1997

405 3 2 Y Y Y Y Y Y N 1997 1997 1997

407 3 2 Y Y Y N Y Y N 1997 1997 1997

Garage and Common Area Electric is paid for by Landlord *I assume this is the $190 / month utility figure listed in the monthly expenses.*

$208/quarter for dumpster *I'm not sure if trash collection is this or if we have to add another $70 per month for the dumpster.*

Fence was put up in 1997"

Thanks,

Mike

[Marcus Auerbach]

@Michael Brunner I think you will find plenty good deals in Madison, but you will have to invest some time and energy to find them. It's the nature of a good deal not being available for a long time. If it's truly a good deal it will be gone fast. I focus on a very small farm area close to where I live and I know every street in there. I was recently able to buy a house of MLS that was listed for less than a day without pictures of the property. I just knew the adress, because I own two other properties within 100 yards on that street and made a very strong offer within hours. Frankly, most hot deals from MLS I loose to competition. They are either faster or they offer more. And you know what - thats a good thing, because when you loose deals you know that you are most likly not overpaying.

There is fundamental wisdom in the old Kiosaky quote: look at 100 houses, offer on 10, get 3 accepted and buy 1. You can take those numbers literally. If you have not looked at 100 (and analysed the numbers) you are not ready to write offers, because you will not know a good deal from a bad one. If you dont get 70% of your offers declined you are offering too much! If you dont turn down accepted offers after detailed inspection you buy too many money pits. (sidenote: being fast is not the only strategy, you can also make offers below asking price on properties that have been sitting for a long time, sometimes deals have to mature before they are ripe).

Finally, I am not sure if you should focus on a portfolio deal. Buying a group of properties requires a lot of ressources in place. Not only money. For example you need a full set of different trades on speed dial (handyman, plumber, electrician, carpenter, window guy, painter, carpet guy etc) to go through and quickly take care of things that need to be done. If you have to get three estimates for every thing you need done on 8 units plan on taking some vacation. I think a portfolio deal is a little much for getting started. You might be biting off more than you can chew. I'd suggest to buy one single family or one duplex and go through the whole cycle of buying, rehabbing (a good deal always needs some sort of work) renting out and then managing before you buy the next one. Believe me you will have your hands full with one property and you will be less stressed out and do a better and more profitable job overall.