Would you guys consider multi family units that are 50% empty? I’m looking at a recently renovated 6 family in a crowded city area. Going for less then $400,000 and below is the financial statement, fully occupied ofcourse.
Year: 2004
Scheduled Gross Income: $61,200
Vacancy: $3,060
Effective Gross Income: $58,140
Maintenance: $2,500
Taxes: $3,262
Insurance: $4,000
Other Expenses: $3,360
Total Expenses: $13,122
Net Operating Income: $45,018
This would be my first deal. Is there anyway for the buyer to secure tenants before purchase? Any advice would be appreciated. The numbers seem to work, correct?
Thanks for the feedback. I thought the numbers looked pretty good.
I know that this place was fully renovated. Gutted and everything is new. Maybe that explains the 50% vacancy as of now…I dunno.
What do you mean by the 5% vacancy rate? Don’t you always put something like that in your financials?
Good thinking about the clause in the contract.
Not sure how I will finance yet but I was pre-approved already from a broker for $500,000 for investment properties. I got some cash in the bank but don’t want to use it, if that’s possible.
uggghhhh, I just found out that this property has no tenents. It’s currently vacant due to the construction on it. What would you guys do? I can tell it has loads of potential. Damn!!!
If they vacated it and rehabbed it, the numbers that you provided look accurate, and you can swing it, I would.
When you gave me your numbers you said “Vacancy: $3,060”…based on the rent-role numbers you provided (“Scheduled Gross Income: $61,200”), that is a 5% vacancy rate…or about 18 days a year vacancy for each unit.
Do rentals go pretty good where you are? Would these units be easy to rent?
Your math works out to about $1275 a month per unit…does that sound realistic for your area or is the seller jacking it up?
Well, the problem is I wouldn’t be able to make payments on the mortgage unless there are tenants in the building. I can get the loan no problem. It’s the monthly payments without tenants that makes me hesitate.
Is that 5% high?
The rentals go pretty good in the area. The lowest rental listing for this area is $800/mth. Most are around $1000/mth. Plus this is a completely new place with new insides. So I’m sure I would get decent to great rental income from the units.
The units rent for about $850 per month x 6 units = $5100 x 12mths = $61200.
Sorry…I mis-read your post and though it was a 4-plex.
5% vacancy rate is a low/average rate. We run about 1-2% here but we’ve got an additional 10-20,000 evacuees still.
I think your bigger worry will be financing – a 6-plex falls into the commercial lending world.
As long as your rental market is strong and you price them right, you should be able to fill relatively quickly. If you close in the middle of the month, you’ll have 45 days to fill because your first payment will not be due until the first of the following month. I would still put a contingency clause in that allows you to show prospective tenants the property before you take possession…
If middle score is 680 or better and your personal income could withstand the monthly mortgage with your Debt Ratio staying below 45%, a loan could be provided with a 75% LTV (possibly 80% LTV) loan with NO Debt Service Requirement needed for the property.
Although this is commercial, the program is underwritten similar to residential with the emphasis being on your personal credit and ability to pay the note with the property secondary or not at all.
Too bad there is absolutely not income presently. A large portion of the income could in fact be added to your income to help with the qualifying Debt Ratio.
Rates are a bit higher 8-9% on either a 20 or 30 year amortization.
It still might work for you, let me know
Good Luck!