I have a question as to what to do and if this is a good deal or not. Here are the details:
For sale by owner 3 unit apartment building; 3 bed 3 bath. Asking price: $118,000 which is what the owner owes. 2,930 sq. ft. tax assessed value: $82,682 as per zillow.com. The owner has tenants in place and says the rents are as follows: $925, $625, and $525 for each unit. Apparently needs no repairs although I have not done an inspection yet. The owner is moving to North Carolina in two weeks and has not sold yet. I asked what she would want as a down payment and she said she didn’t know because she is hoping that the person who buys the property is going to get a mortgage. She doesn’t seem like she knows what she is doing.
I am a new investor (this would be my first deal) who would need lending. Should I go ahead with this deal? Help!
Hi Alicia! Welcome to the forums.
The rental income vs asking price looks pretty good on this place. An owner moving out of state seems like a reasonable cause for the sale. Otherwise, you’d have to ask why or wonder what she was hiding by selling a property that should cash flow just fine. One thing you need to find out on buildings like this (duplexes, triplexes, quads, etc) is what utilities does the owner pay? With these smaller buildings, some are separately metered for electric, but not for water. We own and manage a 6-unit building and pay water/sewer/trash/common area electric in our building. Trash is $32/mo for a dumpster. Water/sewer is usually around 100-120/mo. The common area electric is for the hall lights (which we put on motion switches with time delay so they’re only on when someone walks down the hall) and the electricity for the water heaters (which we wrapped with insulation to help save a little energy). Our electric bill ranges from 70-120 or so per month. We knew about these costs going into it and factored them into our decision to buy. We have no yard in our building, but you may have lawn care there. Will the tenants take care of it or does the owner mow it?
Don’t put anything into what zillow says. Tax assessed values for your area may be accurate or the assessed value may be a fraction of what it’s actually worth. You’ll have to figure that out. You can call the county tax collector’s office to see what the annual tax bill is for the place.
Next thing to find out is what you’ll be able to get financing for. Our building is amortized over 15 yrs and required 25% of purchase price down. Don’t automatically assume that you’ll be able to get a loan for 30 yrs on this. Call around, or better, go visit some local banks and see what they’ll do. Many banks are scared to lend on non-owner occupied (NOO) properties now or they’ve made it out of reach for most people. Also call around and get some quotes on insurance for the property. You’ll be looking for insurance on an investment property. You can either insure it for replacement cost (expensive premiums) or Actual Cash Value where you would insure it for what you have in it. The ACV premiums will be more affordable. Also see what level of liability coverage you’re being quoted. Check into how much your premium goes up when you change from 300k to 500k or even 1MM liability. Usually it’s not that much over the course of a year and having that extra liability coverage is worth it. We carry 500k on our houses and 1MM on the apt building.
Sounds like you have a promising deal here. Nail down some numbers and let us know how it comes out!
Alicia, it’s your first possible deal and you want to go with a triplex? That’s bold. But be careful.
A vacancy, (and multi unit tenants can be somewhat transient), and you could find yourself coming out of pocket to make the mortgage payment. Could you afford that possiblity?
Also, multi units can be very hands on with regards to maintenance and management.
Good luck.