Please help - cash pay 4plex or just invest in syndication?

Question

Please help, I am considering an investment in a 4-unit university type housing in Col umbus .  I'm not a PRO member, so I can't post the deal analysis, but here are the details:

$350k purchase price

$2500 in deferred maintenance I'd address now

Closing costs $4200

7% capex

7% maintenance

5% vacancy

11% property management (actually 8%, but after all the tenant placement fees, assuming 3 new renters each year, I assume closer to 10-11%)

Misc expense ~125 - lawn care and snow?

Insurance:  $1200 annual

Property Tax:  $4200

If I left all my cash in there, I'd be cash-flowing ~ $20k/ year, but CoC only 6-7%

Results with a loan vary, depending how I fudge the numbers a little.  I could do a delayed financing loan to cash out 70% and re-invest.

Cash flow with a loan is ~600 - 700 / month total, and I'd only be getting 5.9-6.8% CoC return, depending on a few variables.

It seems to me that it is not worth to trouble and effort for this low return, except if the area is anticipated to appreciate significantly in the long term.. which I'm not sure about Ohi o.

Richie Thomas · Answer

@Wilson Lin what's the source of these numbers?  If they're from the seller, I hope you're not giving them much credence.  $2,500 deferred maintenance on a $350,000 property seems awfully low to me.  And closing costs of $4,200 work out to 1.2%, which seems low for attorney's fees, appraisal, inspection fees, pre-paid homeowner's insurance, origination fees, pest inspection, pre-paid property tax, recording fees, survey fees, title fees, transfer taxes, etc.

Not sure how old the property is, but CapEx + Maintenance of 14% feels optimistic to me.  These line items are meant to be reserves you stash away for a rainy day, so there's no harm in over-estimating them.  If you over-estimate, it goes in your pocket anyway, but if you under-estimate, you've might have just tanked your cash-flow.

Lastly, your property tax estimate of $4,200 might be low.  Ohio's state-wide average is $5,500, and Franklin County (where Columbus is) might be as high as $7,000 depending on the exact zip code.

Account Closed · Answer

@Wilson Lin if you buy this property at $350K, when Franklin County reassesses your taxes (as they do every 3 years) your taxes will jump to nearly $7,500. I would also increase your snow removal and lawn care per annual.

Account Closed · Answer

If you have 350k to invest why not do a 20-25% downpayment and have money left to do the syndication as well?  You obviously are a accredited investor so do the math and figure out what is best for you.

John Fortes · Answer

To pursue this or invest in a syndication all depends on what your end goal is. Are you looking forward to doing all the work necessary after you carefully implement the tips and adjust your number calculations per the statements given above? You are essentially creating another job till you stabilize the asset (if not stabilized already but still doing the coordinating of maintenance).

If you want to do both, go ahead and throw some debt on it and invest in both the current deal (if it checks out after readjusting your numbers) and a syndicated opportunity if you have that opportunity through established relationships.

Or you can go go with just the syndicated opportunity. Trusting the partners and team you are investing with and thoroughly vetting them out is the first step as well as being educated on the logistics of a syndication. Reviewing and monitoring your returns and communications in the right deal is essentially the process. Questions and follow ups are encouraged if you are more interested in learning the why's and how's.

Again, it all depends on what you are most comfortable doing and how that aligns with your financial goals. Answer that and you will know which direction you will go in.

Happy investing!

Robert Ellis · Answer

@Wilson Lin Seems like you've ran all the numbers for yourself already.  Only you can answer which is the better option for you and your investment strategy and goals.

Ronan Donnelly · Answer

@Wilson Lin, If you spend some time writing down your specific goals as they relate to your real estate business it might guide you to the right answer. If you want to build your own real estate business and create a job for yourself you should get started by buying your own properties. If you want to leverage the power of real estate to grow your wealth but don’t want to commit a significant amount of your time then you may want to think about providing the capital to a professional team that will source, due diligence and manage the asset. Good luck!

Allan Smith · Answer

That's not a great deal. I'd rather keep my cash than get a sad 6%.

as for your question of that vs a syndication, that depends on the deals offered to you. Obviously a passive investment at 6% is better than buying a house that you have to manage to only get 6% (although you get perks like appreciation and principle pay down when you own yourself).

so you have to think about what your goals are. You'll make more money buying real estate on your own, but it takes much more of your time.

Please help - cash pay 4plex or just invest in syndication?

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