5 Unit Strategy Confirmation

[Peter Mikhjian]

I have an opportunity to purchase a 5 unit property (2 SFH's and a triplex). All of the units are currently rented out and it's right next to a small university. The area is growing, but these specific units are pretty run down and they could all use some work. Here are some of the numbers and my two general plans.

Under contract for $412k

20yr commercial loan @ 3.25% (need to put 25% down, $309k borrowed)

Property Tax @ $7850

Total Home Insurance @ $180/month

Rent roll totals $3775/month (estimating that we could increase to $4400/month with minor upgrades)

Strategy 1 (Do nothing)

My math shows cash on cash at about 10% (with property mgmt and no upgrades) and with the increases we can get up to 15% (assuming little to no upgrades).

Strategy 2 (Sell off one of the SFH)

We think we can sell one of the SFH's off and attain ~$170k after the sale (this one rents for $1200/month now). At that price/rent ratio it makes more sense to sell it and refinance the original loan.

A few questions - does the deal make sense, which strategy makes more sense?

Thanks BP

Pete M