# Deal or No Deal

3 unit apartment building
2 2 bedrooms ( one has a fireplace in it)
1 1 bedroom

price 220,000
taxes & insurance around 5,000
at a 5% interest rate
its sold as is repairs look to be less than 1,500 if that

I plan on living in one of the 2 bedroom apartment and renting out the other two for about 2-3 year so that I can get that tax credit ( and this will be my first home buy).The rent in the area range of 1000- 1400 for the 2 bedroom and around 700-800 for the 1 bedroom. I know that I should includ expenses in my cash flow numbers buttttt, I furgure if I can live rent free for a year or two i could handle the expenses, and I do alot of handy work myself. Once i move on to my next property I will for sure have a nice cash flow. But Im just a rookie so I wanted your opinion.

That’s a big range for rent on the 2 br units. If the range is from \$1000-1400 w/ \$1000 being a trashy 2 br in a bad area and \$1400 being a nice updated 2 br unit, where does this one fall?

Here’s the gold standard of potential deal analysis used here:

Let’s start w/ your upper limit for rent on all the units.
\$1400+1400+800 = 3600/mo
NOI = 1800/mo
Payments on \$220K at 7% for 30 yrs = \$1463.67
\$1800-1463.67 = \$336.33/mo cash flow total and \$112.11/mo cash flow per unit. Good.

Now let’s assume you’re down at the bottom of your ranges:
\$1000+1000+700 = 2700/mo
NOI = \$1350/mo
Payment = \$1463.67
Negative cash flow = \$113.67/mo total or \$37.89/mo per unit.

I realize you’re planning on living in a unit and using the rent from the other two to offset your payment and expenses. You also mentioned 5% interest vs. 7%. That lowers the payment to \$1181.01

Let’s use your 5% in the analysis:
Upper rent limit = 3600/mo
NOI = 1800/mo
Cash flow = 618.99/mo total or 206.33/mo per unit

Lower rent limit = 2700
NOI = 1350
Cash flow = 168.99/mo total or 56.33/mo per unit

Obviously the financing is favorable here and helps with the cash flow vs. using the 7% we generally evaluate properties with here. It sounds like this deal has potential if you can nail down what you really think you can get for rent out of those units. Maybe you can do some cosmetic work and command the upper rent amount.
One thing to consider with smaller multi-unit properties is what you as the owner are responsible for providing. Do you pay water/sewer/trash or do you also pay gas/electric? Do you pay any utilities at all? If you have to provide all utilities, this could turn into a completely different deal.
Our first deal was a 6-unit apt. building. We pay water/sewer/trash and common area electric. The previous owner estimated \$100/mo for water and \$100/mo for electric. We generally see about \$125/mo water and \$110/mo electric when we’re fully leased. Trash is only \$32/mo.

I was think the 2 bedroom with the fireplace and a little touch ups could go for no less than 1200. The units also have seperate electric meters. So i would say that I would be responsible for the common area electric sewer/trash/water. There is also a coin washer and drier in the basement.

Are you putting 20% down and financing 180k? Or just financing 220k?

Living rent free and gaining an asset sounds good to me.

Here’s some tips to lower your bills if you do this deal. If you have electric water heaters that are wired into your common area electric, buy the insulating wraps for them (about \$25 per heater). If your light fixtures are normal bulb fixtures, replace all those bulbs with the CFL bulbs. If the lights stay on all the time now, you can put in the motion sensing switches for about \$10-20 each depending on how large of a field of view the switches need. You can set them to stay on for about a minute after motion ceases. That way the tenants will always have light when they’re outside their units, but you won’t be paying for lights 24/7.