[Calc Review] Help me analyze this deal

[Daniel Mohnkern]

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*This link comes directly from our calculators, based on information input by the member who posted.

Owner is in his 80's and "selling to leave his kids with a hassle free inheritance."

Needs very little initial repair(paint in 2 hallways, some drop ceiling tiles, and a few more light fixtures).  Outside of the building is all brick except some trim that could use a coat of paint.  All units are in good shape for now.  Roof will need replaced within 10 years (about $20,000 according to my contractor).

Area is in a somewhat depressed area of the rust belt, but has very low crime, no gang presence, and good pride of ownership in much of the town(think "Groundhog Day" type community). Property is fully rented except for one vacant storefront.  2 of the 13 tenants are Section 8. 

Be hard on me here.  What am I missing?  Too good to be true?

[Jaysen Medhurst]

@Daniel Mohnkern, no, management is 10% of GSR. A 4% quote would scare me. 

1. I don't know how they can afford to PM for that little.
2. There could be all kinds of crazy fees / markups.

One thing you can approach the owner with is a higher price for much lower or 0% interest. Depending on his situation, this can have tax advantages for him since principle and interest are taxed differently. For example, offer $600k at 0% interest for 20 years.

Let's say he's in the 34% tax bracket. In year 1 he'd collect: 

• $400k @ 6.5%, 30-year: $30,303 gross, $9906 in taxes, for a total of $20,397 net
• $600k @ 0%, 20-year: $30,000 gross, $7500 in taxes, for a total of $22,500 net

He's taking home more, you're making roughly the same monthly payment. He's getting all of his money 10 years sooner, you're building equity much faster, end up saving $300k+, and will get that much more depreciation.

The key is that you really do have to plan on this being a long-term hold. Sell too early and this can bite you.