First time investor analyzing triplex needs deal analysis help!

[Sandra Reid]

We have an off-market deal for a triplex, specifics are below. It looks like the initial returns are below what we would target, but there might be potential with some improvements to the property.

Asking: $220K

Down: 20% ($44K)

Initial Improvements: $15K (minor upgrades to flooring, bathrooms and kitchen)

Other potential costs: $20K estimate to separately meter units (current landlord pays utilities at $375/month), $23K to renovate basement into additional unit

Gross rent today with no upgrades: $2415 / Rent estimate with minor upgrades: $2600 / Rent estimate with upgrades and additional unit: $3200 - $3450

Assuming 8% management fees (confirmed), 8.5% vacancy, 11% maintenance, 10% capex and accounting for snow removal and lawn care, the triplex only cash flows $186 total/month ($63/unit) on current rents and $356 ($118/month) on improved rents. Cash on cash return is a dismal 2.7% unimproved and 5.2% with improved rents.

IF everything goes well with the conversion to a 4-plex, then the total initial investment (down payment, closing, $15K rehab, $20K utilities separation) increases from $82K to $105K (finishing basement unit at $23K). With that done, cash on cash goes to 10%-13% depending on rent ranges and cash flow improves to $875 to $1175/month ($218 to $296/unit at 4 units). 

This would meet our criteria! But it feels like we're "buying" that return by putting in $105K when the property costs $220K and it's unclear whether we would be able to refinance out any of that equity given the ARV would probably not increase by the full improvement cost given neighborhood comps.

Any suggestions on the deal or how we should be thinking about this would be great!