need help with 1st deal in CT

[Ginger G.]

I have been looking at 2-4 unit multifamily properties (3b/1.5b) in the Southington, CT area I did a site visit with my handyman.

Property is in good shape new roof and deck, except for aluminum wiring and cosmetic items.

This market has been very competitive the last year and decent properties don't stay on the market too long. 

I have a prospective deal from direct letter I sent out.

I want to make an offer on this property.

How much profit should be built into a multifamily buy and hold?

I understand in a flip 25% to 30% in needed.

Recap:

Duplex in quiet neighborhood.

Built 1970.

Owners debt heavy (1st mortgage $219k, 2nd mortgage $42k)

Sales comp $255,000 July 2017 (I walked this one and it had basement water issues, near highway and less land)

My offer would be:

Assumed their 1st mortgage for $219k. This would allow me to purchase with no money down, correct?

Cash out of my pocket $6,000 closing costs

Rents at $2,400 monthly with 10% vacancy rate

Tax & insurance

15% property management cost

Cash flow would be $420 monthly/ $5,040 annually

cash on cash return 89.9%

Or

$220,000 subject to obtaining financing (25% down at 4.5%) and inspection, other contingencies.

Cash out of my pocket $58,000

Rents at $2,400 monthly with 10% vacancy rate

after Tax & insurance

15% property management cost

Cash flow would be $420 monthly/ $5,040 annually

cash on cash return 14.6%

I appreciate any feedback.

Ginger

[Michael Noto]

@Ginger G. The first discussion I would have with the current owners is if they are able to come out of pocket with the difference at closing and have them due some research on if their loans are even assumable. 

Many owners can't come out of pocket that much money and this is what prevents deals like this from being put together. These kinds of deals come across my desk very frequently here in Connecticut in the area you are operating in and 9 times out of 10 this is where the deal momentum stops. Some owners can though, just want to clarify that before you spend to much time looking into putting something together.

Also, make sure you factor into your numbers the ages of all of the major capex and where it is at in its lifespan. I see you mentioned the roof and electrical, but what about the HVAC and plumbing? 

Without knowing where the property is located it is hard to comment on much else about the specifics of if you are offering to much, etc...,but offer where the numbers make sense for you given your strategy. The money in this business is made on the buy side a lot of the time.