Is this deal too good to be true? What am I missing??

Question

Hey guys,

I've been searching the MLS daily and come across some decent properties..I decided to search for multi units specially ones that have been on the market for a very long time. I came across a 3 unit that has been on the market for over a year! I figured it was extremely over priced..but I ran the numbers and it seems almost amazingly good..? Maybe im missing something substantial.

The house was listed for 229k and has been dropped to 190k..im confident that I would probably get the home at around 170k. The home is a triplex and total income of $3,400 as it currently sits. It appears to need work, but the rents are extremely good compared to the selling price of the home. I ran it through the calc..and this is what I got based on a purchase price of 170k.

Purchase Price: $170,00

Down Payment: $34,000 (20%)

Loan Interest: 4% (Estimate) 30 years amortization

P&I: $649.28

Taxes: $616.67

Vacancy: $340 (10% Guesstimate)

CapEx:$340 (10% Guesstimate)

R&M: $340 (10% Guesstimate)

Management: $340 (10% Guesstimate)

Based on the above my total monthly expenses would be $2,625.95 and an income of $3,400 leaving a cashflow of $774.05.

Am I missing something?? How is this house still on the market? Even purchasing at full price of 190K the purchase make sense..

I'd appreciate any input.

thanks!!

Ned Carey · Answer

@Marcos Torres this appears to be a decent deal. I don't know your  market but it doesn't seem like anything super special. It is certainly not so incredibly great that it would make me suspicious that the deal could actually be that good.   Deals that are "Too good to be true" happen all the time.

Of course there is no guarantee that is a good deal. you need to do your due diligence. Could there be expenses you are not considering like landlord pays utilities? Are there repairs or system upgrades that are needed?

Jibran Najmi · Answer

Marcos,

Have you had a Realtor check for you to see if the listing is an expired listing?  What about tax records?

I'd be happy to search it for you if you direct message me with the address.

Jibran Najmi

Marcos Torres · Answer

thanks everyone for the feedback! After 500+ days, it appears someone made an offer on this house roughly 2 weeks ago..and is currently under attorney review. Guess ill have to keep plugging away..

Robert E Bogino · Answer

@Marcos Torres the deal doesn't seem too good to be true.  You're looking right at the "2%" rule. I cant speak for your area but in mine you can find them, they just are usually in the rougher parts of town.  I cant speak for the UG tanks, but I have heard some costly stories about them.  Like @Ned Carey said, check to make sure the tenants are paying all utilities etc.  Your cost estimates all look pretty good to me.

Chris Martin · Answer

You will need a Phase I Environmental Assessment. I've had them done before. They would be necessary for financing and prudent even if you were buying with no financing contingency. The ESAs we've done were on industrial and commercial property and ran $2K - $3.5K. My guess is yours would be less, but remediation may be a lot more. Just a guess.

Andrew Johnson · Answer

@Marcos Torres There isn't really an easy answer to this one.  Depending on the age you might have issues with lead-based paint, asbestos, galvanized plumbing, etc. and that's not taking into account anything that might be going on with the oil tank.  If you're doing things like "fixing the plumbing" those don't really turn into the ability to raise the rents.  I don't think too many renters pay a premium for adequate plumbing.  I'm just making up random hypotheticals because it doesn't sound like you've been in the units, had an inspection, etc.

That said, there are pricing mistakes (high and low) that happen all the time.  But what you really want to do is have your agent pull sold comps.  That should give you a sense of what the market is from a valuation standpoint.  Unless you're paying all-cash you're going to need an appraisal to show the value for the bank.  It's a triplex, it's not a commercial multifamily, what do the comps support?

Melissa Gittens · Answer

@Marcos Torres there may be more to this property, I would definitely suggest doing a thorough walk through with a contractor. Sometimes these kinds of deals are sitting waiting for the right buyer to take it on. Only when you walk through the house will you see what the house truly needs as far as repairs. Sometimes the pictures only show the best parts of the house. Definitely do your due diligence, if everything checks out, put an offer in! How is the roof, electrical, furnace? Also what is the age of the house?

Steve Alves · Answer

@Marcos Torres As you probably know, the underground storage tank may or may not be a problem. Hopefully it's a quick an easy extraction (let me know if you are interested in a couple of tank pullers I can refer you to).  The obvious risk is that the tank may have holes in it.  If there is contamination that has impacted groundwater or migrated off-site... you will get a letter from the NJDEP letting you know that you're responsible.  You may be able to use historic policies to cover those expenses.  I can help you figure that out.  My business locates and uses historic insurance policies to help our clients pay for clean up costs.  Also, relative to the possibility of contamination, I can help you make sure that that the purchase agreement contains language that makes getting the money from historic carrier(s) a little easier.  DM me if you'd like to learn a little more about this.

Is this deal too good to be true? What am I missing??

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