2% Rule Lives - 9 Units in Maine

[Mike Roy]

Hi BP!  I bought my first property in 2015, a fourplex in Midcoast Maine.  Paid $180k, 25% down with $15k repairs.  $60k all in with gross rent of $3,300 and cashflow of about $800 per month.  For me, this first deal was proof-of-concept, and I've been hungry to find my next good deal ever since.

Two years later, I think I may have finally found it!  This one is nine units (3 townhouse style triplexes), also in Midcoast Maine, built in 1993.  Each unit has 3 bedrooms, 1.5 baths.  Current gross rent is $7,110 and we put it under contract at $355,500 - exactly the 2% rule.  What I really like is that each building is on a separate tax lot, so I can do three conventional loans and sell individually when it's time to exit.  At $118,500 per building, I'm excited to see what the appraisal comes back at. 

Here are the projected monthly numbers:

Initial Investment Budget (Down Payment, Closing Costs and Repairs): $160,000*

Market Rent: $8,100 without heat/hot water**

P&I: $1,351.72

Tax: $700

Insurance: $313

Management: $810

Electric: $15

Heating Fuel: $0

Cold Water: $725

Trash Removal Contract: $128

Plowing/Lawn Contract: $292

Repairs/Capex Reserve: $810

Vacancy: $810

Projected Profit: $2,145.28

Cash on Cash: 16%

*Approximately $50k in repairs/capex to separate heat/hot water, install individual W/D hook ups, remove mold from attics, install gutters, and a few other small items.

**We anticipate gradually stepping up to market rents over a 12-24 month period.

Sometimes, a 2% deal means there is something very wrong with the property that either cannot be fixed or is very costly to fix.  In this case, the problems seem fairly straightforward and correctable.  I am cautiously optimistic that this is the Real Deal.   

What do you all think?

[Ryan Murdock]

@Mike Roy

Congrats on the find!

How are the current tenants? Are they paying? Do you plan to hang onto most of them or will you need to clean out the buildings and start over? Has the radon testing been done? Not a huge expense just a hassle if it hasn't been.