I came across a 6 unit multifamily apartment for about 90k. It is in a not so good area, but gross rents would be $2500 and it’s currently about 85% occupied. I was thinking of this property with a property manager wouldn’t be so bad. A downside I see is that owner pays for gas, water, and garbage (tenant pays electric).
I don’t think I would want to do this deal without a property management co due to location/area, but with property management co fees + owner paying utilties fees, what do you guys think of tihs deal? Seems like it has good cash flow, even with management fees…
Well if the tenants don’t pay for heat, they’ll have it cranked up and run your costs up. You can only raise the rents so much in a bad area. The other thing you may want to remember is the type of people you’ll have renting there. It sounds like you’ll be evicting a lot. Perhaps you should use a 30% vacancy rate… What about repairs? Rehab? Does this place need work? These properties can cashflow…IF you can collect… Due your due diligence and be VERY realistic with your expectatations. Good luck.
Yea, that is a concern. I would rather not pay for utilities, but I was thinking since the cash flow is pretty good, it would be able to cover the utilities I would have to pay? As far as the 30% vacancy rate, you are saying maybe I should do my cash flow analysis using only 70% of gross rents?? I’m using the 50% rule - doesn’t that cover vacancy expense? I’m not sure about repairs yet, BUT seeing how this property is on MLS, I was thinking if it were such a good deal, it probably would have already been bought. Since all the units are rented except 1, the repairs may notbe too big of an issue…
Yes, the 50% rule covers vacancy and all other operating expenses. The problem here is that the tenants can run your expenses FAR ABOVE AVERAGE if you are paying the heat (assuming that you’re in a state that has a cold winter). I don’t pay gas or electric in any of my units, but it still drives me nuts as I drive around on below zero degree winter days and see windows open. Tenants do that because they’re not paying their own bill. Add in the occassional tenant that gets mad at you. They will crank up the heat and open all the windows if you’re paying the heat. I just won’t do it.
another thing to consider is installing electric baseboards and building it into the cost and then run your numbers. You may have to lower rent though because tenants will be paying for heat.
Everyone made the assumption the units were heated by gas and not electric. Do you know if the gas is for the water heaters or for heat? Cakeaholic had a good suggestion if the units are heated by gas and paid by the owner. Baseboard heat is inexpensive to install and fix. Lowe’s has a 72" baseboard heat unit for $70.98 on their website. I would check into what in that building uses gas before you rule it out. The rent amount looks good considering the purchase price. I agree with all the cautions here about paying the tenants’ heat bill and would not do that myself, but you may find the place has gas water heaters and electric heat.