Multi-Family Deal (Cincinnati, OH)

[Paul Lachaud]

Hey Everyone,

Been analyzing a series of deals during the last 2 weeks and I keep coming back to this one. The current owner retired and has moved to a different state. He's tired of coming back to manage his properties, thus he's selling all of them.

All units are the same and there is a detached 3 car garage.

4 unit, 1 bedroom, 1 bathroom each. The current rents are $437.5 per unit which is below market rate of $500 - $650. All units are filled and they pay month-to-month. I plan to increase rents to $575 giving the tenants a 60 day notice.

And here is operating expenses and debt service. Assuming 5% Vacancy, 15% CapEx, 15% Repairs, and 11% property management (I plan the manage it)

Here are the details of the mortgage (currently pre-approved for an FHA loan, but I may likely will use a conventional loan with PMI instead, to avoid the lifetime mortgage insurance. I've calculated with 5% down it would take about 9 years to remove PMI, less time if I redirect cashflow to pay down the mortgage)

Here is the cash flow:

And return:

I'm concerned that I may have miscalculated something because the cash-on-cash return seems so large. Cash Spent is the sum of my down payment and closing costs. Cash on cash return was calculated as Yearly Cash Flow/Cash Spent. It doesn't meet the rule of thumb of $100 per unit, per door when I include PM fees.

The picture looks even better if I increase the rents to $600

I expect some CapEx spent in the next few years as the roof was replaced in 2004. The electric wiring and furnace were updated in 1994.

Crime rates in area are low, elementary school & middle school are average. The high school is below average. The current owner rents to older folks who don't have children. I'm still deciding if I'm comfortable with inheriting tenants. The owner and agent has communicated to them that there would likely be rent hikes under new management. They've all lived there 5-12 years. 

Thoughts on the deal? Am I missing some key factors?

Thanks,

Paul