First timer analysis

[Chris K.]

Hello everyone:

I would like to get your thoughts on a potential fourplex deal in the Wilkes-Barre area.

Property Info

• 4 units – all 2 bedrooms, 1 bath
• I would rate the area as a Class B. I wouldn’t live there, but the area is safe enough that college students and families live there.
• Current owner is an older lady whose husband passed away. Husband was basically the property manager
• Property is in decent condition. The units are not the most attractive, but inoffensive. Could be made better with cosmetic fixes.

Income/Tenants

• Current owner has rented two units for $600 and two units for $550. Seems to match the going rate in that area.
• Current owner was smart so the lease requires the tenants to pay all utilities.
• Current leases are year to year.
• I will rescreen the tenants when the lease expires.
• I will have to due diligence in terms of payment history, etc.
• Let’s be conservative and assume $550 per unit.
• That would be $2200 a month.

Financing

• The seller and I are still playing around with the numbers, but we are most likely looking at the following.
• Purchase Price is $105k
• Down payment is 10 percent via seller financing.
• Interest rate is 5 percent
• 30 year note

Expenses

• All utilities paid by tenant
• Sewage bills are $54 per month
• Insurance is around $90 per mouth
• Mortgage P&I is $507.30
• Assuming 12.5 percent vacancy --- $275
• I will be reserving $220 to cover CapEx per month for all 4 units
• 10 percent for routine repairs --- $220.

Summary

• Based on the above, I gest $427.95 per month in cash flow at $550 per unit.
• If I can rent units for $600, then $562.95 per month.
• Down payment is $10,500.

What do folks think? Any glaring flaws in the analysis? Would you take the deal (assuming due diligence works out)? 

[Robert G.]

I don't see anything set aside for Property Management in "Expenses".

I'd recommend accounting for PM even if you plan on doing it yourself (it will take work and time, so pay yourself accordingly).  There will come a time when you wont want, or wont be able, to serve as the property manager.  When that day comes and you have to pay for the service, you'll want the numbers to still work out.