[Calc Review] Thoughts on Seller-Financed 13-Unit Property

[Shamus Wheeler]

Hello BP,

I have been racking my brain over this deal and am looking for any advice that someone may have.

Here is the link to the BP calculator: View report

This property is a 13 unit multifamily property. It has 2 buildings, one is 8 units and one is 5 units. I negotiated a purchase price of $469,000. The seller has agreed to provide 80% seller financing. We agreed on a 5.5% interest rate. The seller initially agreed to 10-year amortization, but then agreed to a graduated mortgage, with payments of $2,650/month + $200/month/year. With this structure, I will increase my cash flow in the beginning and have a total payoff time of 11 years and 10 months.

The current rent roll is $10,760/month.

This property is in a rural setting in the Catskill, NY area. The town it is in has a population of 6,700 and is located in Greene County, NY. The population is flat to slightly declining. From talking to brokers in the area, transaction volume has increased significantly in the past year for small multifamily.

The property has a lot of deferred maintenance. All of the repairs are cap ex that will not increase the rent roll. The roofs need to be replaced, etc. I have included the Full Inspection Report for anyone who is interested in this information.

Some of the rents are at market and a few are below market. I plan on rehabbing the units as tenants move out and raising the rents to market at that time. Over time, rent roll should be able to be increased to $11,400/month.

There is a management office on the property that has a half bathroom. I am looking into converting this to an additional studio apartment. However, I don't think this will make an impact on the investment decision.

The property has two septic systems. One needs a new tank (inspector said ~$10,000) and the other needs some minor work (inspector said ~$1,000). The other issue with the septic systems was that the leach fields were dry after the inspector flowed water to them. However, no dye showed up in the surrounding areas. Water tests done on the wells were positive. I have included the Septic Report 1 and Septic Report 2 for anyone who is interested in this information.

I know that taking on this project will be a JOB. I am interested in using this deal as a springboard to get into larger deals. I live near this property. 

What am I missing? Do you think the capital expenditures will kill a deal like this? I am enthusiastic, but slightly hesitant to pull the trigger. Thank you in advance for your feedback!

[David Avetisyan]

I would be cautious moving forward on this as a first deal for many reasons. 

This doesn’t mean it isn’t not a good deal. The numbers didn’t look all that bad for face value, but I did not spend time analyzing all the qualifiers. 

In either event, understand you will need capital to clean up all the deferred maintenance.

I personally wouldn’t move forward because of not only the current problems, but the hidden issues that have yet to be uncovered.

To your success!