5 unit multifamily - validate numbers

[Amit G.]

Hello BP'ers, I am excited to share that I have my first multi family under contract. Its a run down mfu that has been vacant for past year or so.  It is in a great location but needs a total rehab.  Please review the numbers below and let me know what you think!

Acquisition: $95000
Rehab: $80000
ARV: $220000 - $250000 (comps provided by realtor)
Likely gross rents: $3000/month + $25 for coinop
Landlord fixed expenses: $750/month (sewer, common electricity, Insurance and lawn care/ snow removal)
Vacancy: 8% (not sure about how to calculate this!)
Repair: 5%
CapEx: 10%
PM: 10% (Is it reasonable or should negotiate for less?)

I am going with cap rate of 8% (not sure how to find it for the area).  

Electric is already separate and I am also getting water meters separated so renters can pay for that along with gas and trash. 

Does it look like I have all the expenses covered? and what do you think of this deal?  

I am going with the philosophy of increasing rents and reducing the expenses to provide a value add to the property.  Is there anything else I can look at towards that goal?

[Austin Fruechting]

10% property management is pretty standard. Check with other PM's in the area and see what they're charging. If they're all charging the same, pick the highest qualified/most professional one and pay them their 10%. 

Vacancy - talk to the PM's in the area and get an idea for average vacancy. 

You'll be in this deal for $175,000. Let's assume since you're doing so many repairs, that it appraises on the higher side and you can refinance and get all your cash back out on a 5%/20yr loan.

Income: $3,025

Expenses: $1,740

NOI: $1,285

Mortgage: $1,155

CASH FLOW: $130

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The positive: You don't have any cash left invested. Your repairs/maintenance/capex will likely be lower given full remodeling, so you'll might do better than above.

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The negatives: 

Although you wouldn't have any cash left in the deal, $130 a month isn't much for this magnitude of a project. What if the appraisal comes in low, or your rents don't match what you expect? 

Have you done major remodels before? How solid is your $80k renovation budget? Is that from bids or your guess? What if your project runs over time and over budget? Do you have enough additional cash if that happens (because they almost always do)?