Hi,
I am new to this site and so far i like what i see.
i have several duplexes and I am going for my first 10 unit.
i want to make sure it sounds like a good deal.
it does to me, so far.
i know the area very well and rents are very, very low for that area.
building is only 25 years old with a new roof and new water heaters and new furnaces.
purchase price is 415k, financed at 6.7% for 10 years, then the arm readjusts but it is locked for 10 years.
5300 income
2870 mtg
575 taxes
200 ins
400 water
100 trash
100 lawn & snow removal
60 common electric
=4300 total expenses
-$250 but property makes laundry profit per month.
=4050$ total expenses
so i’ll make 1250$ a month at 100% financed and rents are very, very low. i should have no problem raising rents $200 - 400$ a month.
which will give me $1650 a month profit.
Where did you get these numbers? Are they based on your due diligence or strictly from the seller? The expenses total 27% of income which is suspiciously low. They should be closer to 45% or about another $800/month (there goes most of your profit). Also, I don’t understand your financing. Do you mean $415K fixed for 10 years but amortized over 30? If so the amortized payment is $2678/mo ($415K amortized over 30 years @ 6.70%). How are you obtaining zero down financing?
Even if your numbers are accurate, 25% of your stated income is derived from the laundry room. This dollar amount is at least twice what I’d believe for a 10 unit building. I’d caution you not to rely a these numbers from a seller. The laundry room is easiest to lie about and the most difficult to check. I’m not in the laundromat business so I don’t rely on laundry (or garage rental) when evaluating a property anyway. These are gravy.
Throughout the United States, operating expenses run 45% to 50% of gross rents. In my opinion, this property will LOSE money each and every month. I certainly would NOT buy it!
Equity in response to your question.
yes, it is 100% financing.
20% is coming from another property of mine in a home equity loan.
so 80% @ 6.7% and 20% at 9%.
on the rest of the numbers, it is all info i have thoroughly researched, by either calling the utility company, looking online at tax rates for the county and/or looking at the Schedule E of the seller.
If you could raise rents by $200-400 a month per unit then you would have something. Otherwise the repairs will eat up all your profit. You will lose on this one.
Yes, the profit. Which is the point of all this rental crap.
hmmm,
i am sorry, but i just don’t see how i could spend 1650$ a month on repairs on a 20 yr old building with new roof and new furnaces and new water heaters.
i’ve made alot of money on duplexes doing things this way, maybe not overnight but in about 7 years, i have become financially independent.
Don’t worry, if you buy this property you will see how. You are also missing expenses like vacancies, evictions, law suits, advertising, etc, etc, etc. That is where your profit will end up.
The purchase price is too high. If you have your heart set on this place then at least bid lower.
I don’t know why you even asked the question when you wanted to argue with the answers. If you want to ignore most of the expenses, that is fine by me. As Iron Range said, the answer will become obvious soon enough and you can join the vast majority of newbies who fail and are forced out of business.
i've made alot of money on duplexes doing things this way, maybe not overnight but in about 7 years, i have become financially independent.
I don’t believe it. Several duplexes will NOT provide financial freedom unless you live EXTREMELY cheaply. Even if you do EVERYTHING right, it is difficult to get $100 per unit per month if you are including all the expenses. Additionally, if you also paid retail for your duplexes, they are probably losing money too (you just may not realize it yet). Would I pay $415K for a rental with gross rents of $5,300? Not even close. I wouldn’t even consider it unless the price was less than $265K.
If you could make 50. to 100.00 profit on a unit then why would someone sell? All of those multi on loopnet don’t look desperate. How can I find motivated sellers of apts?
I did find 12 units that are in a resort town that have a tax value of 850.000 on 4 acres. Taxes say land is worth $175.000 and buildings are worth 665,000. Rents are 7300. a month. What would you guys give for this to make money if owner finances 80% at 8% and I have to get 2nd mortgage of 20% or is there a way I could get these with no money down?
You guys are great. I appreciate your honesty and bluntness:}
I think Iron Range spelled it out beautifully for you. Odds are, this property wont cash-flow and the owner knows that. If you are able to increase the rents, you should be increasing your value proportionately… not offering more. Heed the advice of the experienced folks on here. Dont anticipate only a 3% vacancy rate. Especially if you intend to increase rents.
How do you offer a person who says the valued land and units are 840,000 that you are offering 365,200? How would you convince her that she should take almost 500,000 less? I would like to hear how you experienced smooth talkers would handle this. What if she says well its valued at almost 900,000 and when its paid for it will be all profit. :help :help
First, when it’s all paid off it will only be 1/2 profit. 1/2 of the rent goes to things other then the mortgage (insurance, repairs, taxes, etc). Second you probably won’t convince her. If the max purchase price is $365,200 then you will not be able to smooooth talk her. I am a big fan of lowballing, but usually it has to be a reasonably good deal to start.
Alot of new investors focus too much of their time on apartment buildings. They think they can make one big score. Don’t be one of them. Buy smaller, cheaper properties and get them paid off fast. That’s how you build wealth. Then keep your eyes open for the big properties. But focus on the smaller ones.
How do you offer a person who says the valued land and units are 840,000 that you are offering 365,200?
It’s very simple, you say “the most I could possibly pay for your property is $365,000.” Not hard at all. However, I wouldn’t even waste one minute looking at a property that is this far overpriced. Instead, I concentrate on finding DESPERATE SELLERS who just want to end their pain. They won’t be asking $840,000 for a property that is only worth $365,000!