First, thanks to everyone who has either posted questions or answers to these boards, I have learned sooo much in the past couple of months. I’m getting ready to make an offer (a bit paralyzed by analysis though!) – I want to jump, but don’t want to overlook anything obvious that will cost me greatly. Here’s my deal:
Triplex in the suburbs of Philly, about 30 min from my house. Good working-class area, mostly SFH. Rents seem to be consistent with the market. All are 1 bedrooms of varying unit size. It is currently fully occupied, although the largest unit is working on an eviction. With this tenant out, we would make repairs to this unit (update kitchen, holes in walls, some outside siding replacement, deck awning replaced, etc – nothing structural.).
Sellers are motivated. Partnership between two friends. One needs the cash for another venture and the other one has some personal problems (got this info from the RE agent) – both decided it’s best to get out.
Our goals – hold long term and invest for cash flow.
Ask Price $175k
Optimal Strike price $160k
Numbers based on $160k:
40,000 Down Payment (25%)
120,000 Amount Financed
8,000 Closing costs (5%)
15,000 Rehab – probably less than this, but wanted to be conservative
63,000 Initial Investment (we have the cash for this)
120,000 @ 5.5% for 30 yrs = $680 (we have FICO of 810, so may get better rate)
23,700 Gross Rents (fully rented)
2,370 minus 10% vacancy (will have vacancy from start, the other 2 units have 1 yr leases)
$21,330 GOI
Expenses:
RE Taxes 2,300
Prop Ins 680
R&M 600 (estimated)
Elec 320
Permits 140 (estimated)
Adv 300 (estimated)
Reserves 430 (~2%)
Total OE 4770
NOI $16,560
Annual Debt Service = $8,160
Cash Flow before Taxes = $8,384
On our initial investment of $63k that’s only ~13% which isn’t great, but the cashflow is good and it gets us in the game and some experience. We make good money and have reserves if needed, and we built our own house so we’re quite handy (but agreed that we would try and contract out when possible). We do plan to manage it ourselves. That’s all the info I could think of…. Is there anything we’re forgetting?
Here would be my initial offer:
$154,000
No finance contingency – have pre-approval letter from bank already
Contingency Clauses
– 15 day inspection and financial due diligence
– non-paying tenant has to be gone from premises (don’t want to deal with eviction process right off the bat!)
Close 45 days after 15 day inspection & due diligence
Thoughts? Questions?