Questions on first deal

[David Arnold]

So, I have an off market deal that is in the works with a local REI. I traded some private coaching for his son in order to be able to purchase any multifamily unit of his that he has procured in a recent buyout from another aging investor. I've gone through the 7 units offered and believe I have decided on a 4-plex. I'm nervous as can be, but to me the deal makes more than sense. This will diminish my saving greatly, but will leave me with around 6k. I know this isn't a ton, but I've busted my *** for this money this past year, so it is still scary for me. haha.

It is a 4-plex, all 1 bed, 1 bath units. 3 units will rent for 450, and one will rent for 425. He is completely redoing 3 of the 4 units, and I may be able to talk him into redoing the fourth before closing. Remodeling will consist of painting 3 units, new flooring in all three units. Tile in bathroom, carpet in bedroom/living room, and laminate wood flooring in kitchens. He is also remodeling stairs/entry way with new flooring and paint. Rood and siding is in good condition, and the first major expense I see in the next five years would be replacing all windows. with a 15 year mortgage, at 5% (I'd rather budget high than low) cash flow would be 6056/year. Budgeting 2740 for taxes, 1000 for insurance, 1500 for annual maintenance, and 2560 for utilities.

Now on to the questions:

-the water in my area is billed on a flat rate of 180 every three months. So I'm thinking of offering 2 different prices for rent, one without utilities, and seeing if there's a way I can get the water company to meter each unit, and one with that I'll pay. Any advice on this?

-Financing. Basically, I have a couple of different options. The only local bank I can find with a fixed rate mortgage is state farm. 15 year @ 3.96 30 [email protected]. No origination fee, there is a 450 "appraisal" charge that goes into closing costs if I choose to use them. The other is a local bank offering a 5 year ARM at 2.2. 2% annual cap 10% lifetime cap. The local bank does not offer fixed rates for NOO. I don't have excellent credit, but do have good credit -- 680-690. I'm still in the process of checking with other banks. Should I go with the ARM and try and refinance in 4-5 years? Or would that be difficult? Should I just stick with the fixed rate?

-Am i missing anything in my budgeting that is obvious?

-I will be moving from this area in the very near future. Should I offer one tenant a reduced rate to "manage" the complex? This would include grass, tenant issues, possible handyman work, snow shoveling, etc. Or just pay a management company ten percent? I feel like I would be better off offering 200$ discount to a handyman type, as opposed to 170/month to a management company who will bill out everything that goes wrong. Am I wrong in this assumption? Do management companies usually take care of grass/snow/minor issues in the ten percent or do they bill it out extra?

-with the current owner redoing 3 of the 4 units before purchase, I feel like this deal is a no brainer. Am I wrong in that assumption? Is there anything I'm missing? Like I said, this will be my first deal, so I'm nervous as anyone would be. This is a huge step in my life, so I think I'm just fishing for support here. haha

Any other advice is greatly appreciated! Thanks for all the help. I will keep this updated, or start another forum to track the property when I get closer to closing.

I also have the option of some 2bed/2bath duplexes in good shape, as well. Lower price, but will not cash flow as much as this one. One of them would be 55k purchase price, rents for 1300/month. Cash flow of 4694/year. The other purchase price is 45k, rents for 1050/month cash flows 3388/year. The cash ROI would be highest on the 55k unit, and lowest on the 45k unit. I've pretty much thrown out the idea of the 45k unit. Will update this post after with my breakdown in excel.