Need Help by 11/9/2016: MultiFamily with exact numbers...Please

[Nick Romano]

Hey BP Community.  Thanks you so much in advance for your help with this situation.  Its my first multi family....I've run the numbers, done the research, and this is my last step before making the plunge. See below all the numbers needed (I think) to make the decision to buy.

Property: FOURPLEX-8 bedroom, 4 bath.  This units has 4- Two (2) bedroom and One (1) bath per unit.

Neighborhood: Zipcode- 02171.  Absolute lowest 2 bedroom on the market in this neighborhood is $1600.  Please let me know if I'm wrong.

-Current tenant situation-  I will inherit these tenants and raise all rent to $1200/ea.  They have never been late on rent.  I'm told they will all stick around for at least a few years.  The condo needs a little work and could use updated bathrooms and kitchens.  The plan is to gradually raise rent to market value, when the tenants move out I will renovate each unit one by one.

Unit 1: Current $1,180 Will go to $1200 when I buy.- 4 year tenant

Unit 2: Current $1,130 Will go to $1200 when I buy.- 15 year tenant

Unit 3: Current $1,120 Will go to $1200 when I buy.- 6 year tenant

Unit 4: Current $1,130 Will go to $1200 when I buy.- 5 year tenant

-Utilities:  All tenants pay their own utilities (Gas, oil, heat...not water)

-Water Bill: $650/Quarterly- Paid by owner (me)

-Taxes: $1700/Quarterly 

-Home Insurance: $2150/year

-Flood insurance (needed): $1400/year

-New roof 2013

-New hot water heaters

-New electrical

-Mortgage info:  

-Purchase price: $780,000 ($260/sq ft)

-20% down: $156,000

-30 year fixed @ 3.708% (**Current level)

-Total mortgage payment (including taxes, ins, etc)= $3,955/Month

-Total income from rent= $4,800

-Cash flow: $805/month (@ $1200 rental per unit).  

-Full inspection and final offer scheduled for 11/9/2016

So that's what I got for now.  Any insight you guys could give would be incredibly appreciated.  Its my first deal and to be honest I'm scared.

Thanks so much!!! Looking forward to hearing your helpful replies.

[Oren K.]

Points to consider;

- I do not see any maintenance budget included; appliances, leaks, landscaping, pest, trash, snow, etc.

- Capital Reserve for roof, heating systems, AC(?), etc. This is often $200 to $250 per unit per year. The inspection will detail most of this but what do you see? What is the condition of these systems?

- When a tenant leaves, do you have the funds to renovate the unit or is that coming from accumulated cash flow? If a tenant leaves more quickly then you expect, do you have the funds to renovate the unit?

- If market rent is $1600, why only raise to $1200. I can understand staying a bit below market but 25% seems very passive. It suggests (no real idea) that after purchase, you are all in and if a tenant left immediately, it would cause a problem.

- Vacancy during renovation

- Closing costs, legals, accounting (bookkeeping and taxes preparation). Should also account for property management even if you are doing this yourself.

Even ignoring possible missing expense / budget items, if your cash flow (NOI) is 9.6K (800/M * 12) on an investment of $780K, that is a 1.2% return. Not much better then putting it in the bank but much riskier. Does this meet your expectation? Is this the market return in your area?

Good luck