Is this multi family a deal?? (first post)

[Kyle Matthews]

Hello all,

I've been browsing the site while I socked cash away and I've recently started actively looking for MY FIRST PURCHASE. I would love some feedback on the following deal. FYI My strategy is buy and hold multi families.

3 unit multi family in good location, easy to rent. Listed for 295k, offered 272k with 3% seller's concession only to have the seller come back with 293k but agreed to 3% concession.

Annual income
Unit 1 - 20,400 - occupied
Unit 2 - 15,660 - occupied
Unit 3 - 9,000 - vacant / currently taking applications
Total - 45,060

Annual expenses
Taxes - 6,695
Ins - 1,000
Heat - 1,200 - landlord pays heat, tenants pay everything else
FHA Mortgage - roughly 18,100
Vacancy - 4,506 - 10% - very conservative
Repairs - 4,506
Prop mgmt - 3,604 - quoted 8%
Total - 39,679

Net income - 5,381

Cap rate (-mortgage) - 8%

The top unit needs $8,000 in repairs, but would increase rent 150/month.

Is the a deal?? Thank you in advance for feedback!

[Steve Babiak]

Things that I question:

1. Is $1700/month the going market rate for rent for a unit like unit 1? (depends on beds and baths usually)

2. Is $1305/month he going market rate for rent for a unit like unit 2?

3. FHA mortgage implies you will be living in one of the units; if that's not the case, then you will need some other type of mortgage.

4. Although the mortgage payment reduces the net cash flow of the rental, it is not normally lumped in with expenses for purposes of analysis of an investment.

5. $1200 annually for heat is not realistic. For the size of this building, and the fact that it is landlord paid - it might be that much per MONTH!

6. If landlord pays heat, then landlord often is also paying for hot water, and for water and sewer too. If there aren't individual meters for each unit for all utilities, then landlord IS paying them.

7. Get copies of the seller's Schedule E from their last two (or more) tax returns to see the seller's actual expenses over that time.

It could possibly be a deal if the market rents are really that high.