Help Analyzing 16 Unit Rental

[Jason Bilbrey]

Hi everyone - Looking for some advice on a property I'm considering purchasing.

Offer price is 1.425m - Financing available is 4% with 20% down required. Monthly rent income is $13,760.

Monthly Expenses are:

Insurance: $593 / month (estimated)
Property Tax: $2127 / month (based on 2019)
Garage: $127.50 / month (actual)
Water: $343 /month (estimated)
Snow Removal: $80 / month (actual averaged over year)
Lawn Care: $108 / month (actual averaged over year)
PM Fees: $915.04 / month (7%)

Reserves Estimated:
Vacancy: $688 / month (5%)
Maintenance: $413 / month (3%)
CapEx: $344 / month ($250 per unit per year)

Tenants Pay their own electric/heat/cooling (owner pays water/sewer/trash/snow/lawn)

Additional comments: Property is 2 years old, 16 units, 2 bed/2 bath in each unit, with separate detached garage for each unit. Zero rehab needed.

What do people think of this deal and my analysis?

Normally I'd use 5% maintenance reserves but this property is brand new, so I went with 3%. Vacancy is about 3-5% in this area but I used 5% to be conservative.

I'd actually be self-managing and have my own property management company but paying myself the 7% self-management to compensate for my time.

What am I missing (other expenses, etc)? How do my reserves look?

I currently own 12 rental units across 3 properties, so this would be adding 16 more units.

Thanks in advance!

[Jaysen Medhurst]

Okay, @Jason Bilbrey, a few things to think about:

Water looks low. I usually figure $30-40/unit/month. Call up the local water authority.

I always use 8% Vacancy for MFR properties. This expects 1 month vacancy every two years plus the PM's lease-up fee.

Your Maintenance and CapEx are low. I start with 15% combined. On a 16-unit you'll realize some efficiencies of scale, so could knock that down a couple of percentage points. I certainly wouldn't expect lower than 12% combined over time. I understand that the property is relatively new, so maybe you start a bit lower and gradually increase each year. If you plan to own long term, it will all even out.

I'm estimating your NOI at ~$81k/year, which puts this at a 5.7% Cap Rate. Is that in line with other similar properties in your area?

After CapEx and Debt Service, I'm not seeing much cash flow here. Any room to push the rents?