8 unit multi family - Would you buy it?

[Tony Nguyen]

Hey guys,
I have a 8 unit property in Tampa under contract right now and we're in the inspection stages. I wanted to put up some numbers here to see what you guys think. It's a deal to me, but I want to know if it's a deal to you. If I'm missing info below, let me know and I'll provide. This is my first apartment buy and hold so any advice would be great, thanks!

Price: $155,000
DownPayment: $40,000
Seller Note: $115,000 @ 10 years @ 4% interest
Gross income: $42,300 annually
Property taxes: $1,815 /year
Insurance: $1,550 / year
all 6-1/1 units and 2 studios; all occupied
tenant pays for all utilities
built in 1925

[Max Drizin]

Tony,

With the repairs, even if it's rented, there might be need for real repairs. Things like common areas and the roof, siding, and so on could need repair. Also, long-term tenants have a habit of just putting up with things, but you might hear about the real issues when you become the landlord.

I'm assuming you have done a walk-through of every unit if you've already put it under contract. Assuming the expenses are half of the gross income, you'll be cash-flowing to the tune of ~$20,000 a year. That note is going to eat up more or less all of your income at the beginning, but it's completely worth it if you plan on holding this property for an extended period of time. You'll be making progress on your principal from the very beginning, and that's something to be happy about.

If Oracle's calculations are right, your break-even on vacancy is around 50%, which is good for what you are looking at. You've got a good deal on your hands if the work isn't too bad. It's a 10-cap at ~$200,000.

I'd be willing to put some work into it, especially if it means you might be able to raise the rents a little. I don't know what you plan on doing with tenant rents when you take ownership, but I'd advise against immediately raising rents or doing anything drastic. It sounds like it's already a good deal, and you want the current tenants to like you.

If you put some money into common areas or a new roof or something like that, you can justify higher rents a lot better than just walking in and saying "You guys aren't paying market, here's a 10% increase on your monthly payment."

Just make sure you don't make it too nice. Especially with studios and efficiency apartments, people don't want/need the best, especially if they don't want to pay for it.

Also, watch out for the built in 1925 part. Here in Milwaukee, it seems that things built before 1900 are built to last, but things after usually aren't. Make sure you check the foundation, the chimney if it has one, and so on. At least in my experience, things built in 1860 are usually in better shape than the places next door built in 1960. :P

All in all, it seems like you have a great deal on your hands. Especially for a first holding property, it almost sounds turnkey. Good luck with the deal, and I hope your inspections go well.