I think I found a better deal this time, opinions?

Question

Found a 4 plex in Pueblo, CO. Their asking price for the property is 169,900. Each unit is 1000 sq ft with 2br and 1 ba. Average rent on 2 bedrooms in this area is about 685 (sourced from rentometer, zillow, realtor, trulia, and apartments.com). All 2 br apts for rent right now are in the neighborhood of 800 sq ft so I think I could charge 700/month and be safe. Biggest downside to property is that it was built in 1923, but it looks decent from photos (haven't had a chance to check it out in person yet). I've got the following numbers as a rough estimate on income/expenses (these will be adjusted with more accurate numbers soon):

rental income: 2800

Vac rate: 10% (just a guess)

Taxes: 1150 (from assessor's page adjusted to purchase price)

Insurance: 1275 (adjusted based on my current home premium with new coverage limit)

prop mgmt: 10%

Maint/Repairs: 1200

CapEx: 366 (based on assumption everything in property is at half of its useful life)

My spreadsheet is telling me I have:

cash flow: 688/month

cap rate: 10.68%

CoC ROI: 83.45%

Total ROI: 163.27%

Does this seem like a decent rough estimate of what to expect with this property?

Thanks everyone for any/all input!

Jason Eberhardt · Answer

As a investor in pueblo,  I say be very careful what you think you will get from rent. I have 2 house that Zillow says will rent for $750 -800 but the highest i get is $650. make sure you are looking at same like properties in that area that are or have been for rent.  I would be happy to do a drive by if you would like to get you a idea, also be careful of how a property looks in pics, from liking at many houses a week in can tell you the pics lie most of the time. I would be glad to help anyway I can.

Sam Dangremond · Answer

1118 E 6th St is in the bad part of town.  The turnover costs may be much higher than normal, as could the ongoing repairs costs.  Those rent estimates are high, IMO.

In that price range, looking at what else is on MLS right now... I'd personally much rather buy 1107 Agate Pl or 1419 E Evans.

That's just my take though.

Drop me a message if you'd like to chat about Pueblo more!

Ryan Sanders · Answer

@Joseph Graeve the numbers I put up are based around finding zero down financing options even if they are higher interest. This can skew the numbers on ROI because actual cash investment is so low. For this reason, I focus mainly on cash flow because that's what I'm going to be able to roll into new investments in the future

Jesse Hachey · Answer

Wonderfully well said Mike. I've defended Pueblo myself many times with respect to its overall attractiveness as a city and that was a good way to put it.

Ryan Sanders · Answer

@Michael Wentzel I've been down there once to meet with a pueblo investor and I got some great advice. I will definitely be keeping pueblo on my list of communities to find deals in!

Michael Wentzel · Answer

@Ryan Sanders

It is an interesting 4-plex. You are probably looking at $600 to $650 for rent for each unit. You would need to get a good idea of the condition of the property.

From my limited experience in Pueblo, property management is key. If you have a good property manager and buy the properties right, you can make money. I have 17 units in the community and zero vacancy at the moment. So it is working for me.

I love the community of Pueblo.  If we judged Denver by its worst neighborhoods, nobody would want to live there or invest there. We don't do that because it wouldn't be rational. Pueblo has some rough spots and some beautiful spots and everything in between. Whether you invest there or not, I encourage you to take a day-trip down there to visit the river walk or attend one of their awesome festivals.

Mike

Ryan Sanders · Answer

Not yet, as I haven't found a property worth investing in yet. I just signed a contract with a local broker and he will be assisting me in finding worthy properties. Once I find something worthy of investing in, I will see what strategies will work to find a solution. I may have to go hard money for a little while, and if that is the case I will likely need a 10% down payment but we will see.

Kurt Pourbaix · Answer

I actually have read the book, but was curious how you were doing it.  Like you, I focus on Cash Flow, and particularly cash on cash return.  I know the concepts in the book and they are great, but actually finding the opportunities where you can do that is the tough part.  Sounds like you are having some success with it?

Ryan Sanders · Answer

@Kurt Pourbaix I have not actually found zero down financing, but there are many strategies outlined in Brandon Turner's "The Book on Investing in Real Estate with No and Low Money Down." There are examples of creative financing in that book which require very little or no money down. These types of financing may be difficult to come by, but if they can be found, they will help make the Cash on Cash ROI and the Total ROI skyrocket because of the lack of cash spent up front. If you want to check out the book it is here:

http://get.biggerpockets.com/nomoneydown/

Kurt Pourbaix · Answer

I would be curious to hear how you are finding zero down financing?

I think I found a better deal this time, opinions?

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