Hello again. I’m currently researching multi-family units and financing. I have a partner willing to go in with me on a multi-family deal if the numbers are right. Anyway, I found a scenario and I’m interested in the opinions of forum members. I’d like to know if this potentially looks like a good investment to you, what potential financing options would look like, and how you might think about structuring the deal with the seller.
The following information came from an MLS Listing:
List price: $575,000
No. Units: 6 (all 1 bedroom/1bath units)
Occupancy: Currently 100%
Gross Rent: $4305/month (approx. 718/unit/month)
Annual Gross: $51,660
Annual Expenses: 11,040 (includes taxes and common utilites)
Annual Net Income: 40,620
Vacancy Rate: 4% x 40,620 = 1624.8 (Hot rental area)
Maintenance: 14,400 set aside/year (2006units12months)
Seller willing to carry 10-15% in a second trust.
I think that this might work, but I’d like to know what people think. But if you could negotiate with the seller, what would your offer look like?
With the info you provided you most likely will have a negative cash flow even if you put down 20%
List price: $575,000
Gross Rent: $4305/month (approx. 718/unit/month)
Annual Gross: $51,660
Annual Expenses: 11,040 (includes taxes and common utilities)
Annual Net Income: 40,620
20% $115,000 down payment
80% $460,000 financed over 30 yr @ 6% interest rate (assuming you can get a rate like this) is $2,757.93 monthly or $33,095.16 annually only leaves you with $7524.84 annually.
This is not including Vacancy/Maintenance/Repairs.
Vacancy Rate: 4% x 40,620 = 1624.8 (Hot rental area)
Maintenance: 14,400 set aside/year (2006units12months)
Personally I wouldn’t even look at anything that the total monthly gross rents don’t equal at least 1% ($5,750) of the asking price ($575,000) or 12% of the annual gross rents ($69,000). also I believe that when deducting vacancy you need to deduct it from the gross rents and not the net income.
Thanks for all the responses. It was very helpful in seeing the things I should be looking for when considering a purchase. Many of the buildings for sale in DC, MD, and VA are astronomically priced with rents that don’t equal 1% of asking price. So is the only way to make something like this work to lower the offering price? And if you made an offer to the seller what formula would you use?
One of the very reasons that I moved from the DC area was this very problem!
People are asking and getting astromically high prices for anything that they put a “for sale” sign in front of! The problem for yous is, htat if they wait, someone will pay their price!
I refused to buy in that market and just found employment and investment properties elsewhere.