Multifamily Deal Analysis - Charleston, SC

[Rich C.]

I'm looking into my first investment property in downtown Charleston, SC. After searching and analyzing for 8 months, this is the closest that I have come to a property that makes sense.

-Short sale duplex which caters to grad students and young professionals
-Building constructed in 1930 and in good condition
-Majority of properties here built 1860-1950
-Cap rates for the downtown area generally 6-7.5%
-Market is hot and multiple cash offers are abundant within first few days

Contract list: 340k, sold in 2006 for 444k
Contract price: 318K cash, which is probably 97% of FMV
Current rental income: 3,000/mth
Vacancy: 5% estimate based on other investors
Taxes: 5,000/yr
Insurance: 2,600/yr
Utilities and trash: paid by tenant
Maintenance: 5,040/yr (assuming 14% gross rent)
Contingency: $500/yr
Property management: plan to do own right now, yet market is 9-10% of rent
Mortgage: Plan to finance after purchase, 25% down at 3.70% 30 yr fixed

This seems to yield a ~6.5% cap rate and ~9.4% CoC return. If I hire a property manager, which is not the plan until several years in the future, returns are not great at ~5.5% cap and ~5.5%.

Questions:
1) Would you still figure a property management fee into the numbers even if managing yourself?
2) What are your thoughts on my analysis?

[Joel Owens]

Hi Rich,

I would analyze your options. How much has the rent rose over the last 5 years in the market where you are at??

"Plan to finance after purchase"??

Does this mean pay all cash and close and then refi out later or do you mean put under contract to purchase and get a loan to close it??

If you have 100k cash you have certain options and if you have more than that you can go after other avenues with less headache. Triple net being one where you can hit the cap you are stating without management. Sounds like buyers are overpaying hoping for an appreciation rebound. I wouldn't consider that investing but speculating.

Whether you plan to manage or not include the management fee.

Just saw where you are paying 318k cash. If you have that kind of money I would take a different approach.

3,000 rent by 12 = 36,000 gross per year by half 50% = 18,000 equals 180,000 sales price at a 10 cap. If you have over 300k cash to invest then it's not just about the cash flow but about important tax write offs as well to reduce income unless you are putting every cent into it and have no other money coming in.