4 Unit Analysis. 1 BR units, FHA owner occupied loan.

[Jeff Brower]

Hi all, I am currently searching for a 4 unit to buy and owner occupy using an FHA 3.5% down loan. There is nothing in my market that is desirable to me, so I did an off market mailing campaign to all 3/4 unit owners in my area using the auditors site to source them. I mailed personalized and hand addressed letters to about 30 owners, and have had about 6 call backs.

I have one that I am considering, and would like help on the numbers. The property is in a Class B- area in Lake County 30 minutes east of Cleveland. It is mixed in an area of owner occupied and older multifamily properties. I met the co-owner (sister and brother own in a trust) today and walked through two of the units (other two occupied). It is a 1920 home with four 1 bedroom units. Two up, two down. It is slab with a small basement in one section for the mechanicals. The foundation is sound, not a single crack in the drywall in the place. All separate meters for gas, electric. The city bills the home for sewer and water, but the owner has water submeters in place and pro-rates the bill back to the tenants. So tenants pay all utilities. 95% parking lot which is great for low upkeep. I have not seen a single 'for rent' ad online or sign in the yard for the past year so I don't think they care much about occupancy. I am not worried about the current 50% vacancy for this reason. It could use updates in the future, but rent ready as is so that is how I am running the numbers.

• Roof- Good (I would estimate half life remaining)
• Boilers- Newer and kept up
• Hot water heater- New
• Siding- Newer
• Windows- Older but all in great condition
• Parking- ample with newer asphalt put down in 2000.

We do not have a price yet, she is having a realtor friend come next week and make a recommendation. Very few comps in the area. I have my license, but do not want to make any assumptions. The place is in a unique location in the same city block as many bars, restaurants, and shops. Very popular location. Possible air-bnb goldmine. I am doing my numbers based on passivity as strictly a long term rental.

I am basing all of this off a price of $150,000 which is an estimate for now. I am hoping to roll in some closing costs.

Gross Rent: $625X4= $2500/month. $30,000 Gross. (I am familiar with area rents and this is a solid number)

Expenses:

1. Principle and Interest ( 3.8% for 30 years): $700
2. Insurance: ~$200 (estimate)
3. Taxes: $300 (true)
4. FHA MIP: $100
5. Vacancy 8%: 200
6. Cap Ex 8%: 200
7. Maintenance 8%: 200
8. Property Management 10%: 250 (going to self manage, but running the numbers as if I am not)
9. Utilities (tenants pay all): $0

Total Monthly Expenses: $2,150

Gross Monthly Rent: $2,500

Total Monthly Cash Flow = $350

Total Annual Cash Flow = $4,200

1. Down Payment = $5250 (3.5% of 150k)
2. Closing Costs= $4500 (3% of 150k)
3. Title Insurance= ~$600 (Estimate)
4. Wrapped CC= less seller paid-$4500
5. Pre-paid tax?= ~$2400 (Estimate)
6. Pre-paid insurance?=~$3000 (Estimate)

Total Cash Needed = $11,250

Year 1 Cash on Cash Return = $4,200/$11,250= 37.3% COC

For Cash on cash, should I include Pre-Paid Tax or Pre-Paid Insurance? If so, do those numbers look okay for estimates?

For the down payment, I plan to inflate the price 3% and since I have my license, list a buyer side commission of 3% to pay myself back. This will essentially drop the down payment from 3.5% to 0.5%. (My broker charges only a small fee and no percentage for a personal residence purchase). I am doing the numbers above as if this isn't the case, but an extra perk worth mentioning.

I realize CAP is not for residential, but based on the numbers above. CAP= NOI $12,600($30,000-($1,450x12)) (gross income-yearly expenses less debt service)/$150,000= 8.4%

CAP using the 50% rule. CAP= $15,000 (50% of gross income)/$150,000= 10%

Thoughts on my numbers and percentages? Thoughts on purchase price? Pics will follow below. Thank you!