Need advice On A 5 Unit Property In A Depressed Area

[Jim K.]

hello,

I'm new to REI but I think I found a pretty fair deal in a depressed area. I found a 5 unit building 4 1 bedroom 1 2 bedroom.

Total rents $2275

Taxes $150 

Ins $90

Gas $182 budget plan

Water $50

Trash $35

Sewer $50

Electric $50 

Maintenance $150

All of the units are outdated but appear very solid.   The building will need a new roof and a new furnace in the near future.   I plan on using the  need for roof and furnace into negotiating the price.  

I guess that I'm looking for advice, comments, anything I'm missing.   Than my next question is how do you feel about investing in depressed areas.  The value of the building will more than likely increase by very much and of course I'll have to deal with the tenants and what I believe to be a decent cash flow for my investment.   

Finally  the property is about an hour drive one way from where I live which doesn't bother me but figured I needed to add that.   What should I do run to the bank for the lown or forget about this property all together.  

[John Leavelle]

Howdy @Jim K.

What is your definition of a depressed area?  War zone or slums?

You did not provide the asking price or what you offer would be.  What kind of financing terms and payment?

Does the property need any immediate repairs (Rehab)?  

You left out 3 important expense items:

Vacancy rate 10%

PM 10%

CapEx 10%

Also you need to account for other miscellaneous expenses such as;  Lawn care/Snow removal, pest control, legal, accounting, marketing, etc.  Use can use 5% for now.

Are the utility expenses listed for entire property or just common areas?  If it's for the whole property then the water and electric bills seem low.

What is the Rental Market rates for the area?

You are missing too much information to be able to give any analysis of a good deal or not.

As far as investing in a "depressed area ".  If it is slums or war zone then now way. If you are talking a "C" neighborhood then yes. You need to provide more description of the area.

Hope this helps.  :)