Deal Analysis: Multi-Family (Easton, PA)

[Robert Ferrar]

Hi All - Thanks in advance for any suggestions / insights / recommendations.

My partner and I have crunched the numbers and it looks like a good deal to us, would like the greater opinion of the BP community. I plan on visiting the site this Friday. This is our first commercial multi-unit deal, my partner has 7+ SFU's all house hacked in VA, but, this is our first entry into Lehigh Valley and multi-family space.

Deal Specifics: 

• Deal Type: Off-market, 9 unit plus coin operated laundry
• Asking Price: $800,000
• Target Acquisition Price: $760,000 (4.5% discount)
• Gross Rents: $92,000 ($7,667/mnth)
• Down Payment: 20%
• Financing Terms: 6.125% fixed 30 year commercial loan
• Operating Costs: $28,272 ($2,356/mnth)
• NOI: $63,728 ($5,310/mnth)
• FCF: $19,164 ($1,597/mnth)

Deal assumptions: 

• Vacancy: 8.33%
• PM Fee: 10%
• Maintenance: 5%
• Closing Costs: 4.1%

Key Metrics:

• Meets 1% rule
• FCF/Door: $177/month
• DSCR: 1.43
• Cap Rate: 8.43%
• Cash-on-Cash Return: 10.41%

Would love to hear anyone's thoughts, particularly those familiar with the Lehigh Valley area.

Thanks again!

[Chris S.]

I would get the actual rent roll (not the forecasted).  See what the turnover is.  Also, I'd get the credit score of every tenant.  If they paid late, etc.

For the placement fee, iIf the turnover is 1.5 years and they get paid 1 month's fee for each placement, (to make it easy), just say it's $1,000 per month and after mortgage/expenses you get $300, that's $1,000 fee/(18 * $300) income, so 18.5% of your profit or 5.6% of the entire rent payments $1,000/$18,000.  Also, there are eviction costs and rent loss during the eviction.  Then are they going to charge you another placement fee for the replacement tenant.  Anyway, just things to ask the PM.

And I'm not sure if you're familiar w/ the property, but you should probably take 1 or 2 days to hang out there on the week/weekend (spend some time at the property), meet a few PMs, etc

Best of luck with everything!