Analyze this deal

Rehabbing, Fix and Flip, Rental Properties
1

My investment partner and I went through a 2,300 sf 3 story, 3 unit building today (a one bedroom on each floor).
We are looking at offering 225k and altering each unit into a 2 bd, 1ba unit with 2 12x11 bedrooms a 12 x12 living room and a 10 x12 foot kitchen. The area is a very good area, with a high percentage of young professionals that rent.

We estimate that it will cost about 89k to renovate all three units and the common areas and that includes unforseen expenses, and also is a high estimate on most things just to be safe. Market rents in this area are 1050 -1200 for 2bd units. And our mortgage payment would be around 1950 per month. We would be living in one of the units, and rent the others out as we got them rennovated. The arv would be good based on recent multi unit comps.

I am just wondering if this seems like a good deal and also I am worried that the room sizes seem to small. However, many of the houses in this area have smaller bedrooms.

Is this a good deal?

Thanks!

2

phatman,

Since the rooms are small, you would probably be getting rents on the low side of the range. Therefore, let’s assume that you could get $1,050 per month per unt. That gives you a total rents of $3,150 (assuming all 3 were rented instead of you living in one unit). Operating expenses would be about $1,500, leaving $1,650 to pay the mortgage and for cash flow. Therefore, this rental would lose about $300 per month and you would be paying retail for it (considering the comps).

Negative cash flow and no equity does not signal a successful deal in my book.

Mike