As this is my first investment purchase and it would be an out of state investment I would have a property manager continue to run, I would REALLY appreciate any feedback or input!!!
VERY Long Term Tenants (claim is 20+ years) in each unit are family members (brothers)
Unit 1 - One is section 8 – check straight from govt. ($350)
One is on social security and is disabled – other pays rent cashiers check ($275)
Unit mix 2 x 2 bd/ 1 bth
Here are the numbers:
Price $26,000 (they will only accept cash) I can come up with about 10k in cash but would have to take a personal loan to cover the rest
Gross Rent:
$7,500 (100% occupancy consistently)
Expenses –
A) $1975 (owners claims with property mgt included)
OR –
B) $3000 (if I assume a 40% of rents =expenses)
NOI:
$5,525 (if use A expenses)
OR
$4.500 (if use B expenses)
Even if I was to 100% LTV at a $26K price at approx 7.5%
Annual Debt Service would be: $2340
So Annual positive Cash Flow would be:
$3185 (if expenses A – owner claims) (or $265 a month)
OR
$2160 (if expenses B – using 40% of gross rents) (or $180 a month)
Repairs known (before property inspection) needs new exterior and interior paint (additional $1,500), Roof is approximately 10 years old
The money seems small but consistent
Duplex Located in Buffalo, New York
There have been a lot of foreclosures in that area – some I can tell were investors
On the plus side, these tenants don’t seem like they are going any where soon.
When I ran the cash on cash return and looked at the cash flow it looks pretty good, even if you were to finance it at 100%
So what do you think?
Thanks!
Holly
:help
Holly
Buffalo.NY is a funny market. Lots of crime and drugs. Brutual winters can really kill cashflow with heater/boiler problems and from what I have found,many unethical property managers. For 26K, your not getting a great property. How high the taxes, does the current owner have an exemption to keep them lower. They have houses there for 26K with $4K tax bills. So make sure you know what it is before exemption since you have to file and get approved.
Also comps…well they are hard in Buffalo to do and closing take 2 months on avg. They are not on computers I believe and you still want a title search done which takes time.
Now where do you live?? Are you within a few hrs drive?? If PM knows your a new investor or far away, you will see magical problems arise so they can make money.
I this market to be for experienced people or someone with several properties so the PM doesnt mess with you. Its a cheap market with lots of crappy tenants… HEck its Buffalo…
Andrew
Holly,
It is very common for tenants to turn over with a new owner. This is especially true for tenants that are related to the previous owner. You could easily go from 100% occupancy to 100% vacancy.
In addition, it is imperative that you see the leases and have the owner sign an estoppel letter certifying that the leases are as advertised. It would be terrible to buy this property and find out that the family members had long term leases for rents that are well under market value.
Now, lets look at the numbers:
Gross rents: $625
Operating Expenses: $313
NOI: $312
Mortgage payment ($26,000, 30 YR, 7%): $172
Cash flow: $140 per month or $70 per unit per month, which is only fair. Not a great deal.
Your estimation of expenses at 40% of gross rents is low, especially for a long distance rental with paid property management.
Good Luck,
Mike