My first TriPlex - analyzing the numbers

[Luis Silva]

Hi All! 

I am finally in the process of buying my first triplex in the Kansas City area. Very excited and also very nervous! I am really hope for some advice (the good, the bad, and the ugly), regarding the property and what I am getting myself into.

The deal looks as follows:

Purchase Price: 160k

Down payment: $40k

Loan: 120K @ 4.99% - $650 principal and Interest (30yr fixed)

Expenses (I am estimating these):

Utilities: $200 per month

Property Taxes: $170 per month

Insurance: $130 per month

Misc: $60

Maintenance: $150 (not sure if this is light)

Vacancy: $60 ($720 annual)

Management: I plan to manage the property for now. 

Total expenses per month: $1,420

Current Income:

Unit 1: Studio - Rented for $440 - One year lease (Ends May 2018 - just resigned)

Unit 2: Studio - Rented $480 - two year lease (ends May 2019 - Just resigned)

Unit 3: 2 bed 1 bath - Rented $625 - Month to month lease. 

Total Income as-is: $1545

Cash flow: $125 ($42 per unit). 

As-is, the deal does not look to strong but the 2 bed unit is currently under market and where I see the biggest opportunity at this point since the other units are leased for the next 1-2 years. I was hoping to bump that unit up to 700-725 which would make the numbers look a little better. 

Is there anything I am not accounting for? Does this deal make sense? Is it normal to have a 2 year lease (the studio just resigned for 2 years)? 

Any feedback is certainly appreciated. Thanks a bunch!

[Jared Viernes]

Luis Silva have you thought about passing the utilities on to the tenants? I remember listening to a BP episode (I think episode 60 with Serge Shukhat?) where they talked about sub metering companies that install sub meters to measure what tenants are using then bill the tenants for the utilities directly. Is that something you have looked into? That's one way to immediately increase your return if it fits in your market.

Also, have you thought about capital expenditures? Depending on how old your property is that could become expensive quickly if you didn't get everything replaced.