Is This A Deal?

General Real Estate Investing
1

A guy wants to sell 3 duplexes that he and his brother own free and clear on contract. I just spent 2 1/2 hours with him looking at each unit, talking to the tenants, and then he and I sitting down and talking about the deal.

He’s retired and told me that he goes to Florida for 7 months out of the year. He said it’s hard to not think about how the properties are doing when he’s away for so long and just wants to be rid of them.

Here’s what I know…

Total of monthly rents for the 6 units: $3,234 (4 of the tenants are on HUD)
Expenses…(These were figures he gave me)
Avg. Monthly Water/Garbage: $160
Avg. Heat/Electricity Month: $504
Insurance Month: $88
Taxes Month: $169
Total Monthly Expenses: $921

That leaves $2323/month for debt service, vacancy, repairs, and profit.

He is asking $150K for the 3 duplexes and wants some money down. He didn’t specify how much down he needed.

We talked for a long time after going through these properties. I told him I wasn’t very happy with my current banking situation. On Monday he is going to introduce me to banker at a locally owned bank and I am planning to bring my financial statements and taxes to talk about purchasing the 3 duplexes as well as possibly moving my current loans to his bank if he can serve me better than what I currently have. I have 4 rental properties and a restaurant and am not totally happy with the bank where my loans are currently at. I thought I’d at least check into it.

I’d appreciate it if you experienced investors would give me your thoughts on if you thought this would be a good deal.

Thank you!

Brian

2

Well I’m certainly still new to the game but you got the 2% rule down (2% of $150k would be $3k+/mo)

Make sure you factor in repairs to the total loan, and figure out how much they are going to cost. If the place needs 30k in repairs you start getting away from that 2% number.

I would also make sure that the $921 is EVERYTHING. Javipa posted this sheet which would be helpful in running numbers

http://jaypalmquist.com/images/real-estate-analysis-form.png

3

Thanks for the response. There really isn’t anything major that needs to be done that I could tell from my walk through. He’s done a nice job of maintaining the properties. The downside obviously is that the owner pays for all of the heat, electric, water, garbage, sewer, etc.

The power company that provides the gas/electric has a program where they provide rebates to have homes insulated. These have all recently been updated with insulation by a local contractor.

The seller also told me that because he owns the property free and clear and wants to sell it on contract that if I want terms he could give me terms.

I would really appreciate it if other experienced investors would let me know what you think about this deal.

I’m meeting him at a local bank this morning and he wants to see my financial statement and have my credit checked. He also thought this bank would be able to help me with my current loans and with getting financing for future deals.

4

Was hoping to get some more input on if this is a good deal from you folks that have been investing for a while. Would you do this deal?

Thanks!
Brian