Asking for advice on 3 unit deal!

[Navid A.]

Hi all, found a single level triplex with 2x 1-bed 1-bath units and a 2-bed 2-bath unit. All three units are currently occupied and are leased until sept 2018. This is my first multifamily deal and need a little help to see if it's a good deal or not. Also, could use your advice on financing the property. I have the cash for a 25% down deposit, but would like to limit the cash I put into the deal as much as possible. Two contracts have been placed, but both fell through because the inspection report stated that the electrical fuse box is in a closet and therefore not up to code...perhaps I have some leverage here for a better deal. The units were recently updated and refreshed with new interior and exterior paint and new flooring. Here are the numbers:

• Seller Price: $149,999
• Tax assessment: $112,000
• Built in 1979
• 3 units (2x1br1ba =$475 each, 1x2br2br=$600)
• Gross rental income: $1550/month
• Rental property insurance cost: $1220/yr
• Property tax: $2200/yr
• Management costs: $0 (in house)

How much should I account for maintenance and capex? My plan is to offer $115k, the seller is very motivated to sell and is the typical tired landlord. The property is located on a quiet cul-de-sac in a class C area. Any and all advice is appreciated!

[John Leavelle]

Howdy @Navid A.

What is the Market Value or ARV of the property? Do not use tax assessment to determine the value. It will be hard to justify an offer that is 30% below asking price without knowing the market value. Relocating the electrical box is not enough. If they come back with a counter offer then I guess you can play ball.

You did not provide enough expense data. Vacancy rate, Maintenance, CapEx, Owner paid utilities, lawn care need to be accounted for. I would always include Property Management even if you are self managing. Your time is worth something. And if you plan to grow you may want to use a PM in the future. I always stay conservative with expenses when analyzing properties.

My quick estimate of the deal. At asking price with 25% down payment, 4.5%APR/30 year mortgage and using the 50% rule for expenses you end up with ruffly $200 per month Cash Flow. If you can get the property for your Offer the Cash Flow would be around $338.

Obviously, if actual expenses are lower than 50% the Cash Flow will go up.