Seeking feedback on this deal

[Evan Hyde]

Hello! This is my first post and I've been loving the BP forum and podcast for a few months now. I came across this deal and it seems pretty good. I need to figure out what to ask this seller.

Here's what I know now:

1924 Triplex, total rents of $1935/month
Asking $199k, $40k down, $1335/month seller finance

This guy needs to sell it quick, should I be asking for a lower down payment, lower monthly payment, lower sales price? Seems to me the sale price doesn't matter all that much if I can get great terms.

Thanks for the insight!

Evan

[Brendan J.]

Evan, I think you'd find it difficult to cash flow this property.

If you use the 50% rule that states expenses (everything except principal and interest) over a period of time will equal half of the market rent per month, you're looking at $1935/2 = $968 as your cash flow after expenses.

You could save some money (~8-10%) by managing this yourself, but my hunch is that with that old of a property the upkeep and capital improvements will be higher on this deal than a newer property. Let's assume you can beat the odds on the 50% rule slightly and are able to see $1,100 a month before debt service.

$1,100 - $1,335 = -$235 (negative cash flow)

The 50% Rule isn't perfect for every property on any given year, but comes damn close over a long period of time. I think this deal will end up sucking more money per month than you could stand to make.

Perhaps look for a different deal?