First Deal in Eastern Pennsylvania

[John Cavaliere]

Hey everyone! I am planning to make my first offer but I wanted to know if the numbers work.

Location: East Pennsylvania

Type: converted four family

Price: $350,000

Total SqFt: 3,232

Built: 1869

Units:

1. 2 bed 1 bath $565 (Section 8)

2. 2 bed 1 bath $725

3. 1 bed 1 bath $725

4. 1 bed 1 bath $650

Total: $2,665/m, $31,980/yr

Expenses:

Sewer: $52 per unit per month $2,496/yr

Taxes: $2,885/yr

Insurance: $750/yr

Estimated mortgage: $14,000/yr 20% down ($70,000)

Total: $20,131

The bright side:

1. The previous owner drilled a well and no longer pays for city water.

2. Each apartment is individually metered and the tenants pay their own electric.

3. Each apartment has their own individual water heater and therefore pays their own gas bill.

4. The section 8 tenant in the biggest apartment paying the least amount in rent is not renewing their lease when it ends in October so we will be able to get market rent for that unit.

5. There is a bonus room with an exterior entrance that has a 3/4 bathroom and a small kitchen that may be able to be used for something or added to apartment next door turning it into a third two bedroom apartment.

6. Every unit, while not being the most beautiful apartments have no need for any remodeling or repair. The current owner has kept the entire property very well over his 30 years of ownership.

7. The building is in what my realtor (not the listing agent) says is the most desirable part of town. Walking distance from shops and parks.

Financing:

I am looking at traditional financing and am lucky to have my parents help with the down payment. They offered to lend me the money at 0% to help me get started.

Prospective changes:

1. With market rent and converting one unit to a 2 bed 1 bath my agent thinks we could conservatively get $725 for each apartment (average is $800) bringing the yearly rent from $31,980 to $34,800.

2. I am not sure what I want to offer yet but one of the first things the owner told us when we toured the building was that he is negotiable.

My biggest question is at what price would this be a fair deal? At the current price and rents it seems to be a 16% cash on cash return on the $70,000 down payment but that doesn't include capital expenditure or vacancy. Also as mentioned earlier, the down payment is not mine and will be paid back at 0% interest so I'm slightly confused if cash on cash return plays a big factor in this deal since once they're paid back, I won't have any cash in the building.

Thank you so much for any insight and help with anything I may have missed!

-John Cavaliere