Dothan, AL. 8-unit deal. Need extra eyes/opinions.

[Donnie M.]

I am close to getting an 8-unit in Dothan, AL under contract for $160,000.  Seller will allow me to put 20,000 down and I'll have 1-year to pay off the 140,000 at 6% interest only (700 a month for the interest only payment).  What do you think of this deal?

Estimated repairs: $40,000 and I like to include a fudge factor $8,000 for $48,000 in all.

Each unit is 2 bed 1 bath and 1000 sq ft.

3 out of 8 units are occupied with two probable evictions.  Current rent is $425 and I believe market rent is $500.

Utilities are separately metered for water and electric.

HVAC units are 10 - 12 years old.  Roof less than 5 years old.  Property is about 30 years old.

C class neighborhood.

Analysis once I get it stabilized:

Rent: 4000 (8 units renting 500 each)

Property Taxes:  150

Insurance: 120 (based on it insuring it at 200,000)

Trash: 80.  I am probably way off on this one.  Would you go for one or two dumpsters on an 8-unit?  I will call trash company tomorrow.

Property Management 10%: 400

Vacancy 8%: 320

CapEx 5%: 200

Maintenance/Repairs 10%: 400

Principal+Interest (after refinance of 20 yrs at 6% for 210,000): 1500

NET NET Cashflow of 4000 - 3170 = $830 for about $100 a door.

I estimate I will have about 5 - 10k left into the deal when all is said and done so I should theoretically have most of all my cash back out of the deal in a year after the refinance.

Thoughts?  See anything I'm missing or have terribly miscalculated in your opinion?  Thanks in advance for the help!

[Anthony Dooley]

@Donnie M. It's not a bad deal, it's actually better than your analysis. I would put it under contract, focus on rehabbing and getting the other five units rented out.  Hopefully, you will be able to cash flow the repairs so that you can secure financing when the year is up. If you can fix one unit per month, you should be 100% occupied in 6 months. With 5 newly renovated units, your $400 maintenance costs should be less. Cap Ex is commonly referred to on this blog, but it is not an actual expense. That is your money until you spend it. I would start looking for new financing as soon as you are 90-100% occupied. If you can self-manage from 100 miles away, I would do it for a short period of time. You will be there a lot until the renovations are complete. Good luck with it.