I talked to the owner of a 5 plex who may want to sell. I haven’t been inside this building yet but wanted to get input as I consider making an offer on this building.
The owner would be willing to consider seller financing. I beleive I could buy this 5 plex for $65K. So…in my calculations I’ve used $65,000 as a purchase price.
Here’s what I know…
The building has just passed the city inspection
The units are one bedroom/one bath
The units generate $1,610 in rent each month
Monthly Expenses:
$478 Est. mortgage (principal/interest at 8% on $65,000 purchase price)
$98 Taxes
$109 Insurance
$280 Utilities
Total Monthly Expenses = $965
Monthly income of $1,610 minus monthly expenses of $965 leaves a cash flow of over $600 a month to cover maintenance, vacancy and other costs.
I know I need to get into the building to see what condition it’s in to determine what my offer should be.
I would manage the building myself. Would you investors who have been doing this for a while consider this as a possible deal or would you pass? I’m interested in your thoughts.
Thanks,
Brian
Are the units all inhabited?
Are the rents (about $322 a month each) at market rates?
How old is the building? What are its maintnenance problems?
Is there any ‘deferred maintenance’ currently?
What utilities does the landlord pay? (Heat? Water? Trash? Snow removal? Common area lighting?) What is the $3300+ a year for?
Even if you manage yourself, you still should account for a “management expense” in your calculations…I don’t work for free, you shouldn’t either and someday you might not be so anxious to manage properties and have to turn it iover to “Mike”!
Is the seller willing to hold the paper for less than 8% or would he finance for less?
This one is a bit marginal but I might look at it and hopefully raise the rents or lower the expenses to make if cashflow better…
My two cents (before taxes)…
Keith
Thanks for the response, Keith. Yes, all units have tenants and the rent ranges from 300-345. I’m not sure why the range and will have to check into it. The rents might be a little low for our market and could be raised I would think.
The building is fairly old and will need to check into the maintenance problems-Thanks!
The landlord pays for heat, water and trash removal (I forgot about trash) That will add another $40/month to costs. Heat is $230/ month and water is $50/month. Total monthly costs for this = $320.
I would try to get 7% on seller financing. Any other ideas on how to structure the terms with the seller?
Thanks,
Brian
Try to get a deferal on the first payment start date…like 90 days or so. That will allow you to build a bit of reserves…
I would try to finanace 7% at 30 years but I’ll bet the seller will look to finance at 30-year amortization with a balloon…maybe 7 or 10 years down the road. Your job will be to ge the best deal for you…try to structure it in your best interests and then negotiate to some middle ground that you can still live with.
If you can sneak all of the rents up to $350-375, your monthly goes to $1750-1875 and straight to your bottomline. Are the tenants on valid leases or are they month-to-month?
Keith
I’ll have to check, but I think they are month to month. I believe most tenants have been there for 2-4 years.