When would this property make sense?

Question

Hi everyone.  I'm new to deal analysis so I wanted to give this one a try and see if I'm at least in the right ball park for analyzing deals

• Purchase price - $587k
• Yearly gross income - $42,461 (though for current listed rents it would be $60k)
• Yearly Expenses (50% rule) - $21,230 ($30k w/ listed rent rates)
• pro forma expenses - $24,700

Insurance - $2,400Taxes - $12,000Maint / CapEx - $6,300 (15% of rent)Utilities (snow/lawn/water/sewer) - $4,000
• Insurance - $2,400
• Taxes - $12,000
• Maint / CapEx - $6,300 (15% of rent)
• Utilities (snow/lawn/water/sewer) - $4,000
• NOI (50% rule) - $21,230
• NOI (pro forma) - $17,761
• P&I w/ 10%down - $30,000 ($2,500/month)

• Insurance - $2,400
• Taxes - $12,000
• Maint / CapEx - $6,300 (15% of rent)
• Utilities (snow/lawn/water/sewer) - $4,000

Obviously this is a negative cash flow w/ a low DP mortgage, so this house isn't worth it to me.  But would it be worth it if I got it for $100k less and the rents were at the $60k/year?

Then its $30k NOI w/ $24k in P&I payments = $6k cash flow/year ($125/unit/month).

Am I missing anything else?

Jassem A. · Answer

It last sold for 165k. I probably wouldn't offer much more than that. Maybe see how much these types of properties are going for at the courthouse steps.

Matt Rauer · Answer

@Michael Fischbach Flat roof, in Vermont with winter, I can't even imagine!!  This place is definitely out of my price range, but I wanted to use it as an example to make sure I understand the concepts of analyzing a deal.  I'm most likely looking for duplexes in the $250-$300k price range for my first purchase.

@Christopher Phillips Thanks Christopher.  I've chatted with a couple of lenders so I'm getting a better lay of the land as far as financing goes.  I've been told 25% down for an investment property from one lender.  As far as the state of this 4unit, I completely agree that some money would be needed to rehab this place.  When looking at this place, I think the rents are under market rates (probably b/c state of building).  I think this place could conservatively gross $70k/year if the units were updated.  Again, lots of capital to make that happen, on top of a over priced building, so I'm not touching it, but just wanted to chat about this to learn.

@Kevin Siedlecki Thanks Kevin for your feedback.  The listing showed $8k/yr for maintenance, so you are right, the 15% of rent was actually lower than what the owner says it is.  I'm not sure if that includes CapEx or not, but that would lower the NOI even more.   1 question for you though Kevin, how/why would someone get into a 4 unit like this, as all 4units are in that ~$500k range?  They are in for over 6figures, so when would it make sense as an investor (ignoring the state of this building)?  Would it need to be $300/unit/month so $14k cashflow yearly?

I completely agree that this is not worth it, hence why its still on the market for almost 3 months when a duplex went in under 3 days this past weekend. Thanks again for the comments so far, I definitely learned a lot in the past hr or two.

Michael Fischbach · Answer

@Matt Rauer by the tax records on file the portion with the flat roof was a converted garage!  That's why the selling price was $167K

Matt Rauer · Answer

@Jassem A. Ahh ok, I understand now. Thanks for the explanation Jassem.

Jassem A. · Answer

@Matt Rauer

If mortgage is not paid then foreclosure proceedings begin and property is usually listed under trustee sales in local paper and auctioned at the courthouse steps at certain times. If not one bids the minimum then it will eventually get listed with an agent as a bank/govt owned property. To buy you either need cashiers' checks in full amount made out to yourself or sometimes only 10% of your maximum offer and then you usually have up to 15-30 days to pay remainder.

Matt Rauer · Answer

@Jassem A. What do you mean "at the courthouse steps"?

Matt Rauer · Answer

Too funny.  Price dropped $42k today, down to $545k.  I wonder if they found this thread :-)

Michael Fischbach · Answer

Yup I was right after looking at the particulars and past taxes for this house, it sends up way to many red flags.  The tax assesment in 2014 was 375k

Michael Fischbach · Answer

Your numbers are correct but even at 100K lower a lender would never give you a loan on it.  Have you checked the particulars or even had an inspection done?   My max offer on it would be like 350k provided I had the money to sure up the foundations and fix huge violations and that flat roof is a nightmare!

Christopher Phillips · Answer

I agree with @Michael Fischbach.

The place is in rough shape. Your calculations would also need to factor in rehab. Then the question becomes can the improved conditions get higher rents? Otherwise, you're dumping money into a place to get the same exact rent.

When would this property make sense?

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