Need help with my first investment!

[Luke Elliott Schneider]

I'm a very new investor currently in a hot market hoping for some experienced advice on my first deal. Hopefully I found the right place!

THE STORY:

For the past year I've been working as much as possible and saving every dime I can while searching for a multi-family property in the hopes of using the house hacking strategy. I was sent an off market deal by an agent that specializes in multifamily properties a couple days ago, ran a quick analysis, as I've learned to do through this website, and found it to be worth perusing. I went ahead and submitted an offer with several contingencies in place to back out if I find anything crazy of course.

MY ANALYSIS:

THE VALUE:

The cheapest similar units I've found in the area are around $1300. I believe at minimum I can get the rents up to $1400 as similar units with similar sq footage in the area are renting $1300 -$1600 for 3 bed 1 bath and no garage. The current owner is absentee and apparently is tired of managing it from a distance. They've owned it since 2001 and don't seem to have kept up with market rental rates.

I have roommates already lined up and wanting to move in that will bring my rent down to $700. $300 cheaper than my 1 bed apt I'm living in now.

THE QUESTION:

I just don't know what else to consider. Is there anything else I may not be foreseeing about this deal that could make it awful? Is this a horrible idea?? I just need a second opinion, I hope I'm not being too hasty with this thing. If any extra info is needed please let me know!

Your time and help are much appreciated!!

[Travis Hughes]

Excellent tips from @Ranga Ramanathan.  I agree, the maintenance numbers seem low given that you have 4x the mechanicals of a single family home.  Add in closing costs (mortgage origination, funding escrow account, title insurance and transfer, etc).  

Upon move out, if we assume your $1350/mo estimate is accurate for all 4 of the units, double the maintenance to $3,660/yr, and add another $5,000 in closing costs for acquisition (that's sort of random), your cost to acquire the asset becomes $24,000 and your annual cashflow comes out to about $9,000.  That would be 37.5% cash on cash return when all four units are leased out.  Maybe run those numbers through the calculator and see if they match up with my bar napkin math.

Also, is there no rehab needed at all? 

One thing that I like to do for maintenance is add up all of the mechanicals and appliances and divide over a 10 year lifespan.  So if we assume each unit has an HVAC system ($4,000), water heater ($800), fridge ($1,000), range ($750), and dishwasher ($500), then that would come out to $7,050 per unit per decade to replace those items.  Over 4 units, that's about $28,000 in maintenance every 10 years just for these five items.  That comes out to $2,800 in annual maintenance before you handle any other repairs.  (These prices are in my experience with my vendors here in ATL.)  

Overall this looks like a good deal. Just check your assumptions and be confident about the ARV, rental rates, closing costs, rehab figures, maintenance figures, etc.