analyze this 3 plex buy and hold deal

[John B.]

B/B+ 3-plex in A neighborhood, small, upscale town in upstate New York, very stable housing market, 9/10 school district, 3-4% appreciation over last decade, 10-13% appreciation over last year. Rental demand fluctuates but is currently very high as people look to get out of NYC.

List price $425k, down payment 25% + closing costs $9,000 = total cash $115,250. Conventional mortgage 30 years @ 4%

Rents:

• 4Br/2Ba currently vacant, market rent $1900
• 1Br/1Ba currently $900, increase to $950
• Studio currently $600, increase to $650
• -----------------------------------------------
• $3500

Expenses:

• -$1522 payment/interest
• -$640 taxes
• -$150 insurance
• -$200 repairs/maintenance
• -$350 capex
• -$280 vacancy
• ----------------------------------------------
• -$3142

Cash flow

• $358 per month

CoCR = 3.7% Cap Rate = 5.2%

My story:

• Goal is long-term (8-10+ years) buy and hold investor. I do not need cash flow, as I have adequate W-2 income. Will likely funnel cash flow back into mortgage paydown to accelerate equity build. Purchase price is likely current full market value. I want to take advantage of historically low interest rates locked at 30 years and get into real property with the possibility of inflation coming at some point.

[Richard Alvarez]

HI, 

Looks like a good analysis, but you might add a little for any unexpected repairs. Another factor is you need an opinion on the market in general. If you feel it is going up, then you should be fine, but if you have some insight and think it will go down, then you will need a strategy to weather the storm. I know if you can make it through the next downward cycle no matter when that might be, you will be fine. I also know if you can break even and the tenants make the mortgage payment, then you are adding principal reduction on a monthly basis and don't forget about Depreciation expense that should help. If you can break even on all that, the real bonus becomes the appreciation that will enable you to hit it out of the ballpark. Best Regards,

Richard