Can you help me evaluate this 3 family deal?

[Joseph M.]

I am having a little trouble with calculating the maintenance/capex expenses. It is also hard to find comps for this type of property in this area. I would be putting 20% down with a 3 year ARM amortized over 20 years (no balloon payment). My best guess is the property needs about $5-10K over the next year to do some renovations.

MULTI-FAMILY – 3 Family

Asking Price

$137,500

The property sits on about a 1/3 of an acre and has 3 occupied units. All tenants are month to month at the moment and some minor problems with late payment of up to 7-10 days on one of the units. The rent roll is $2,500/month or $30,000/year and the annual expenses paid by the landlord are about $11,000.

[Alan Brown]

What interest rate do you have on that ARM?

For running my numbers, I like to use VMTIM:  

VACANCY( find out what it is in your area--typically 3% to 7%set aside monthly in a decent area), MAINTENANCE (5% set aside monthly)

TAXES,  INSURANCE

and MANAGEMENT, if you're not doing it yourself, which is usually anywhere from 5% to 10% depending on your area.  

don't forget closing costs, 

and be careful not to want the deal too much.  Be COLD to the numbers... make sure you're OVER estimating repairs, and may have pleasant surprises.  DO NOT skimp on inspecting well septic furnace roof and foundation.  Get a flow test, find out how deeep the well is, and get ahold of the drilling records.  I usually have seller pay for septic to be pumped and inspected... be careful, 1/3 an acre is not enough room for a new septic if the field is failing in any way.  Hard to imagine how they got well and septic on the same 1/3 acre lot...Are you sure it's well and septic?   Pick every inspectors brain and make sure you understand those systems... they can take you down.  seriously.  been there!

Late tenant might not be a problem, but if it's easy to rent there, consider a new tenant... especially if you need to get in and upgrade, getting rid of a lousy tenant is a good way... Otherwise, if tenant pays on time most of the time, and is happy there, it might give you a little time to save some capx money.  No point in changing out interior stuff if tenant is happy OR is not timely with rent!!

cheers