REO 6plex

[Mariah Jeffery]

I will be putting a bid on an REO 6 plex in about a week, and I'm trying to figure out how much to offer with a lot of missing info.

Rehab
The units appear to be in excellent condition for an REO. One unit needs all new flooring. 4 need new refrigerators. The roof and siding are only a few years old. The biggest issue is the utilities; there are only 3 electric meters and 2 gas meters, so I'd be stuck paying all utilities. I'd want to put in tankless water heaters. I'm estimating about $5K is what it would take in total.

Rents
There is one 2 bedroom/1 bath unit, four 1/1's, and one efficiency. However, they are enormous for the number of bedrooms; the efficiency is 700 sq. ft and the other units are around 1,100 sq. ft. My other one bedroom units are about 500 sq. ft. and rent for $425 without any utilities included, so I'd guess these would be at least $600 for the one bedroom, $500 for the efficiency and $700 for the 2 bedrooms since all utilities are included. Rents estimated at $3,600, but I could be off. 2 units have W/D hookups, so for the other 4 units I'm estimating $100/month in laundry income, for a total of $3,700/month.

Expenses
Average cost for utilities is currently about $800/month for w/s/g, gas & electric for 6 units but I think I could reduce those with the tankless water heaters. Taxes are $3,600/yr and insurance is $1,500/yr. Property management would be 8.5%.
Total monthly expenses: $700 (estimated utilities after tankless heaters) + $425 T/I + $284 PM + $600 maintenance & misc. =~ $2K/month

Financing
5.5% fixed for 5 years, 30% down, 20 year am., rate increase capped at 2% every 5 years.

I don't have anything commercial yet so I'm not sure how to factor in the variable interest rate.

How much should I offer for this one?

[Jeffrey K.]

Your laundry income is too much. In a four unit of 1BR I usually make less than $50 and all of it goes to paying for the public meter.

Tankless waterheaters are not a good choice for several reasons. Not going to get into it here. You should be able to get away with dual rapid recovery 40s or 50s which are waaaayyyy cheaper and easier to work with.

Have you thought about putting in in-unit heat in the form of 90% furnaces or electric baseboard heat?

The electric should be easy to swap over. You should be able to do it for around 1k/unit and it would be a value add and if you keep it long enough it will save you big time.

Double your estimate because I have never seen an REO that costs only 5k to rehab that does not end up being purchased by an OO.

Good luck and welcome to commercial. BTW, the rates suck and when you figure out a way to analyze deal with ARMs besides running a stress test let me know. I run all my deals at 7% becasue I plan to hold for a long time.