Multifamily (7 Unit) Analysis Help

[Andrew Herrig]

Hello all, I am just starting to get into the real estate game and am looking to buy my first property hopefully by the end of the year to buy and hold. I have been analyzing a ton of properties to get a feel for the numbers in my area.

Here is one I am currently considering. It has been on the MLS for a long time and was recently reduced. The numbers don't seem to be too bad, but there has to be something wrong with it for it to be sitting so long. Maybe someone can help me out?

Here are the facts...

3 units are 1-1, 4 units are 2-2, rents are $500-$540 on the 1-1's and $700-$740 on the 2-2's, with one vacancy currently.

Purchase Price = $195,000
Downpayment = 25%
Closing costs = 2.5%
Loan = 20 years at 6% (is this typical for a commercial loan)

Assuming rents on the low end of the range, that is $4300/mo gross rents. To calculate expenses I estimated the following:

8% vacancy
2.7% taxes (of purchase price)
1% insurance (of purchase price)
10% maintenance (of gross rents)
10% management (of effective rents)
$1024 HOA dues

I end up with a gross income of $51,600, vacancy loss of $4128, and operating expenses of $29,410 for a net operating income of $18,062 and pre-tax cash flow of $5489. While this is not an outstanding return it seems decent, so I am at a loss as to why this property has been listed for months now. Help me analyze this deal!

[Joel Owens]

If all the systems and mechanicals are old the repairs will eat up any expected returns for years if things go perfect with your tenants.

The key question is if the previous owner did a lot of deferred maintenance and kept hoarding cash instead.

The HOA doesn't mean anything.They can go defunct or increase the dues or add special assessments.

I like to keep control of my investments so do not like deals like this where you are betting on an external party to maintain your property.