Please help! My first "real" deal and I'm at a crossraods

Real Estate Deal Analysis & Advice
10yFollow

Please help! My first "real" deal and I'm at a crossraods

Joel Kadlec
Tulsa, OK · Member since 2015 · 43 posts · 4 votes

I am currently under contract on two 4plexes that are side by side, so 8 total units. After the inspection I found out that all the AC units and furnaces will need to be replaced pretty soon due to their ancient age. Im estimating 8 ACs and 8 furnaces and install could run about 30k. There are also a lot of small things here and there.

The seller has agreed to fix a lot of things, but is doing himself so there will be no proper or licensed documentation which makes me nervous. Not sure if this is typical or not.

My plan is to hold for about 5 years and then sell and upgrade.

Anyway here are the numbers:

Purchase price: $170,000 (85k for each quad) ARV I estimate $240k

Loan is commercial 15% down 20yr

Monthly Income: $4,000

Monthly expenses: $3,087 (I estimate 5% vacany 8% repairs 8% capex, etc.)

Cashflow: $912

Cash needed: $59,000/this includes the 30k for HVAC as stated above. or I might be able to get a line of credit tacked onto the loan after apparsail comes through which would make my cash needed about $30,000 but would change my number a little as well obliviously.

ROI 18.4%

Good thing is that roof is only 2 years old and the exterior is in great condition.

Any advice would be greatly appreciated! My inspection revision deadline is on the 21st and I am trying to get as much input as possible from any source I know. Thank you all very much in advance!

Appreciatively,

Joel

0Reply
16 views

Most Popular Reply

Chris Simmons
Real Estate Agent · Owasso, OK · Member since 2014 · 517 posts · 400 votes
10y

Based on what you are describing and my knowledge of the area, I am concerned on several fronts.  Fortunately, you are going through a good commercial bank that should vet your numbers but don't trust them totally.  Banks will still give you enough rope to hang yourself.  

This is a big deal with low quality tenants for your first deal.  Be ready for higher than average issues with vacancy and such.  

While I like the area, (I just bought a duplex at 25th and sheridan) the price you are paying concerns me.  I'm trying to picture where you would get units like that at that price and I'm not liking where I think it's located.  Hopefully I'm wrong and you really landed a good deal. 

The seller fixing lots of stuff is expected, especially at this price point.  Hopefully he does it right, but again, at this price point and considering he's selling, what's his motivation?  

Fortunately, this is still considered single family under landlord tenant act and financing guidelines, so you could conceivably get a 30 year fixed rate mortgage for both sides, (2 mortgages total).  The landlord tenant act is important in determining what you have to do as landlord....more strict and higher levels of service required for true commercial vs quadplex or less.  

Are utilities metered seperately?  What do you have to pay?  What are your numbers regarding trash collection, outside lighting etc....assuming you will provide either for these properties.  

How confident are you with exit strategy?  As rates rise, cap rates and property values will tend to fall but of course there are lots of other factors that can impact and override those.   Unlike a boring single family home, you will pretty much be stuck selling to another landlord so you need to be cautiously optimistic about future values etc. 

Proceed with caution. I will be happy to help and meet you sometime if interested.  

Good luck. 

2Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    I guess I should have asked as well, oops:

    Does this seem like a good deal?

    60k for 18% and 912 cashflow?

    30K for 25% if I got that line of credit wrapped into the loan and cashflow of $733, but this wouldnt be know until after the inspection deadline. 

    Thanks again

    0Reply
  • Scott Carder
    Investor · Owasso, OK · Member since 2013 · 166 posts · 90 votes
    10y

    I assume in Tulsa? What zip code? Curious what bank your working with? They only rent for 500 a month each??

    Thanks

    0Reply
  • Michael Boyer
    Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
    10y

    wow, you are jumping right in. Congrats. I would get all the quality work done by the seller that you can before closing, but sounds like you are discounting the hvac already....after that you are relying on the kindness of strangers (so they probably won't fix it later)..and get your landlording processes in place too. I have a blog with some classic books (all probably free at library ) on the topic..finally, it might be worth exploring getting new efficient ac, furnaces, hvac rolled into the loan (as that is like 15-20 percent of the deal) but may be tough to do before closing....or maybe tap equity in a few years for that...best of luck

    0Reply
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    Scott,

    Yes in tulsa. close to 31st and memorial off the highway. Im working with 1st oklahoma bank and have had a positive experience so far. 

    0Reply
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    Michael,

    yes going all in i guess. Thank you for your feedback. What are your thoughts on the deal as it stands?

    0Reply
  • Michael Boyer
    Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
    10y

    I would go long...like 20 years long....then rents increase, it appreciates, and I read you own it free and clear minus any other later encumbrances; get all the maintenance info from owner down to paint codes.. Rent rolls, deposit reconciliations, venders, event tenant notes, key operational details.. A pending issue like ac and heat makes me nervous if you haven't got 30 k in hand (and this is a capital issue that goes directly to tenant satisfaction because no ac means no tenant or rent in Tulsa summer time).. So getting that done upfront in the deal somehow is ideal...Bite the bullet early and get that updated then you may be set a decade or two..looks like you are buying right. Short term oil prices make me nervous about some states (ok included) but long term buy and hold I like it over decade or more (why sell when you just start to figure it out)...best of luck

    0Reply
  • Chris Simmons
    Real Estate Agent · Owasso, OK · Member since 2014 · 517 posts · 400 votes
    10y

    Based on what you are describing and my knowledge of the area, I am concerned on several fronts.  Fortunately, you are going through a good commercial bank that should vet your numbers but don't trust them totally.  Banks will still give you enough rope to hang yourself.  

    This is a big deal with low quality tenants for your first deal.  Be ready for higher than average issues with vacancy and such.  

    While I like the area, (I just bought a duplex at 25th and sheridan) the price you are paying concerns me.  I'm trying to picture where you would get units like that at that price and I'm not liking where I think it's located.  Hopefully I'm wrong and you really landed a good deal. 

    The seller fixing lots of stuff is expected, especially at this price point.  Hopefully he does it right, but again, at this price point and considering he's selling, what's his motivation?  

    Fortunately, this is still considered single family under landlord tenant act and financing guidelines, so you could conceivably get a 30 year fixed rate mortgage for both sides, (2 mortgages total).  The landlord tenant act is important in determining what you have to do as landlord....more strict and higher levels of service required for true commercial vs quadplex or less.  

    Are utilities metered seperately?  What do you have to pay?  What are your numbers regarding trash collection, outside lighting etc....assuming you will provide either for these properties.  

    How confident are you with exit strategy?  As rates rise, cap rates and property values will tend to fall but of course there are lots of other factors that can impact and override those.   Unlike a boring single family home, you will pretty much be stuck selling to another landlord so you need to be cautiously optimistic about future values etc. 

    Proceed with caution. I will be happy to help and meet you sometime if interested.  

    Good luck. 

    2Reply
  • John Lindemann
    Investor · Broken Arrow, OK · Member since 2015 · 91 posts · 20 votes
    10y

    @Joel Kadlec - I won't go too far into the numbers but I think there are probably better deals out there.  The rent seems low for Tulsa, are these 2/1 homes?

    I bought two SFH's in BA and have about $55k total tied up in both and I have $55k mortgages on both. My net is approximately $900 after mtg and using your vacancy/repairs/etc percentages...which are really close to what I actually saw.

    I would think you could do better on a multi-family.  On one side I'd say that my deal is easier because I only have 2 tenants to deal with and a lot fewer refrigerators, A/C units, sinks, toilets, etc but on the other hand...if one of my tenants doesn't pay or I have a vacancy then I lose 1/2 my rental income.

    I am very interested in purchasing a du/tri/quadplex or small apartment, do you mind me asking where you found the deal? Was this MLS, LoopNet, off-market?

    Best of luck to you!

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    I have sticker shock!  I can't get near this price/rent ratio in my area, even in the 'hood!

    You have been given great advice by seasoned LL @Michael Boyer and local investor/banker @Chris Simmons.  I would add to talk to the city about how these sit with them, talk to the tenants and talk to the neighbors as additional very important  parts of your DD.

    Good luck and pls keep us posted @Joel Kadlec!

    0Reply
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    Chris,

    As always thank you for your input.  As far as the area it defiently is lower income. The address is 2617 S 85th east ave. I would pay roughly $390/mo. for water and $279 for gas. tenant pays electric and I would pay $80/mo. for trash as well. I still think this could be a good deal if I can get the seller to agree to have a licensed professional take care of heating and air, but I dont think that is going to happen. I am always happy to meet and will always appreciate and value advice. Thanks for taking the time

    0Reply
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    John,

    Thank you for the input and personal examples. It will give me more to think about. This particular deal I found on redfin, but I also like loopnet and mls. Seems like thats what you do as well so I am not much help on that front 

    0Reply
  • Joel Kadlec
    OP
    Tulsa, OK · Member since 2015 · 43 posts · 4 votes
    10y

    Steve,

    It is funny you mentioned sticker shock because I had felt the same way as I have recently moved from Colorado where price/rent is through the roof. Thanks for the advice and I will make sure to keep up with updates.

    0Reply
  • Mark SpidellPro Member
    Glenwood Springs, CO · Member since 2012 · 127 posts · 22 votes
    10y

    Hi Joel,

    Certainly a good opportunity to get some scale going as a new investor.  Be sure to get a few bids on the HVAC.  I would think for a big job like that you might be able to get better pricing then $3,750 per unit.  Check with some smaller service providers who want to stay busy.

    You are next to a fairly busy road.  The location and property type  will likely attract a difficult tenant profile.  You will earn your high yield from dealing with the tenants.  You have to ask yourself  if you have the time and energy.  Are you going to live there also and view it as a form of house hacking?  If so, you might be able to create a better culture than what would normally be found at such a complex.

    You should follow the previously mentioned advice about the 30 year loans.  That will help your monthly cash flow.

    All the best,

    Mark

    Podcast Guest on Show #156
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free