Deal or No Deal? Triplex plus Garage Apt

[Daniel J.]

I am currently looking at a triplex with a detached garage apt. It is in the Spring, TX area just north of Houston. It is currently owner occupied, with 2 units rented long term, and 1 unit used for AirBNB, I would not continue doing AirBNB. I would NOT owner occupy it. My agent believes that it could easily all told rent for $4,300 a month, possibly more. It is currently set up for owner paid utilities. Shared laundry between all 4 units. I would be purchasing this with a partner who is fronting the down payment. Long term plan would be to refi out in 6-9 years in one manner or another and repay my partner plus 5%. It fell out of contract previously because of appraisal issues. Contract for $336, but appraised for $300. The owner who is an agent felt the comps were poor comps as the property is somewhat unique. We have seen the appraisal and my agent overall agrees that they are not the best comps. It was for a VA loan.

Purchase Price: $315,000

Loan: 30 Fixed at 4.875, 25% down

Rents: $4,300 (conservative but reasonable)

Utilities: $7,000 (Based off their actuals plus some fluff)

Repairs: $2,000

CapEx: $3,600

Vacancy: 10% (Somewhat a shot in the dark, I can't find any good data for the area)

Taxes: $7,000 (Current tax rate times the purchase price)

Management: 11%

Cash flow with PM: $347.50 per month

Cash flow no PM: $773.20 per month

It is on a well and septic. From a previous contract they had the septic inspected and the inspector said they needed a larger system. The current owner said they have had no issues, and have only had the tank pumped once while owning it in 3 years. Both my agent and I feel she is trustworthy. Granted everyone is biased towards themselves. It also has about 3-4 years left in the roof. 

It is on 3 lots, part of the negotiations with the previous contract was to lose the 3rd lot, and have the septic replaced, they had a negotiated price of $336, which the owner said she didn't want to go lower on. The other option if you didn't replace the septic would be to buy all 3 lots. No current use for the 3rd other than nice lawn. If you don't replace the septic you need all 3 lots as the current drain lines for the septic run onto it.

Am I missing anything? What do y'all think? It seems like a pretty good deal, though not perfect. 

Thanks!

Daniel

[Jack P.]

I would say it may be worth the risk if you are self-managing, have a talent for finding good tenants, and are handy with repairs.  Otherwise, your margins are very small, and don't leave you any room for significant repairs.  If I read that right, you will have to replace the roof in a few years, which is another added expense in the 5-figure range, and will wipe out 10 years worth of profits.  

I don't really know anything about septic, but you probably want to get a quote on replacing the system just so you know what you're getting into.  Also, the utilities kill your profit.  I can see collective water in a multi-plex, but paying for tenants electricity is just nuts, especially in TX, where they'll run the A/C 24/7 because they aren't paying for it.