8 unit #'s. . .does it look good

General Real Estate Investing
1

Here goes the details for my potentially first deal:
Description: 8 unit Multi-family
(6) 3 bed
(1) 1 bed
1 efficiency
2 garages
Coin-Op

Income:

Units Avg. Rent: Monthly Income: Yearly:

6-3 Bedroom $754 $4,524 $54,288
1-1 Bedroom $450 $450 $5,400
1-Efficiency $400 $400 $4,800
1 Coin Op $200 $200 $2,400
2 Garages $100 $0 $0

Gross Income: $5,574 $66,888

Expenses:

Taxes $492 $5,900
Electric/Heat $830 $9,960
Water $83 $1,000
Sewer $167 $2,000
Insurance $200 $2,400
Trash $95 $1,140
Fire Alarm $25 $300
Maintenance $300 $3,600
Vacancy $292 $3,500

Total Expenses: $2,483 $29,800

NOI $3,091 $37,088

Asking $379,900 and I’m going to try and get it for $325,000. If I can finance $325k (purchase at $425k with allowance for repairs, etc., netting $325k to seller), what rate would I expect to pay. I’ve assumed 8.25% - 30yr. , so about $2450/month. Could easily raise rents to $800/mth+ (section 8 approved property, $875/month allowable rental rate), and get rents for garages as well. Does this look like a possible deal or am I barking up the wrong tree?

Thanks for your help and guidance.

2

Where did you get the vacancy and the maintenance figures?

What is the electric/heating? Are the units not separately metered?

Keith

3

I used 5% as vacancy. Maintenance was provided in the realtors package. As for the utilities:
The tenant does pay for the cooking gas as well as the elec in their apartments. The owner pays for taxes, outside and common area electric, all heat for the building, water, sewer, insurance, alarm, and trash.

4

Where is this? A 5% vacancy rate contemplates about 18 days a year (per unit) of vacancy. What is the vacancy rate in the area? If you lose a tenant, can you: Turn the property around, advertise it, and get a tenant in the place in about 2 weeks?

Usually 5% vacancy is in an area where rentals are hard to find and rent very quickly…an average vacancy rate is 10%…

Keith

5

This is a suburb of Philadelphia. The building’s section 8 approved, and the county seat is very close to the property. I have some connections that can get section 8 tenants placed quickly inthe property if I don’t get the vacancy filled personally. However, there is quite a lot of section 8 potential to fill the place (it’s actually about $850/month/ 3bd unit with subsidies if I go that route. I’ve already thought about getting the whole place filled with section 8 to get the increase in rents. It’s obviously a trade off between the quality of tenant and the $.

6

How much are you going to put down?

7

Even at the $379k purchase price and factoring 10% vacancy you have a cap rate around 9% and that doesn’t include the potential to raise rents.

From my understanding, that’s pretty good. I have heard that you want at least a 7% cap rate. It sounds like a decent deal with upside potential. Good luck!