Should I buy this 24 plex?

I came acrossed a 24 plex for sale in my town here for $750,000.
I am assuming i can get it for $500,000. But Here is the info on it

Princ. & Interest @ 8.5% = $3900
Taxes @ $13,500 per year or $1125 per month
Insurance @ $300 per month ( I have no clue on this, maybe high, or lower)
Total = $5325 per month out

18 - 2Br units @ $365 ea. or $6,570 per month
6 - 1Br units @ $345 ea. or $2070 per month
Total = $8640 per month in
Profit of $3,315

With this said, the realtor told me there is a 10-20% vacancy rate.

So $8,640 * 20% = $1,728 loss
for a total of $6,912 in
for a profit of $1587 per month

I would also raise rent by $20per month since this is under market

what i am needing to know is if i am missing anything. I am going to do my own management. I can do most repair work myself, as i do rehab houses also. My biggest problem is trying to get into this with nothing down. Can it be done? I have good credit about 670-700 score. a decent paying job. 1 other rental house, a house that iam rehabbing to be sold hopefully in the next month or two for a $20,000 profit. Can anybody give me any advice? am i heading for too deep of water here? Is the $1,600 profit @ 20% vacancy too little for this complex? if anybody can help me on financing and other issues, please let me know as i would like to possibly go through with this.

thanks
Andy

Andy,

I know that you know better! LOL…

What about:

Maintenance ($25-50 a month per unit), even if you manage yourself

Management (8 - 10%), even if you manage yourself

8.5% sounds a little high but it might not be for a blended rate and a commercial loan…have you broached the suject of owner financing with the seller? Also, I have heard a good many commercial loans are assumable. That bears checking out also.

Keith

I ran the numbers for you on my cash-flow analyzer calculator.

here is what I came up with:

Assuming YEARLY:
$6000 insurance.
$13500 taxes.
$0 management.

0 down payment:
1st mortgage = 600,000 - @ 8.5% - 30years
2nd mortgage = 150,000 - @ 8.5% - 30 years

Here is the results:
15,552 vacancy credit loss or 15% vacancy

$68,628 NET OPERATING INCOME
$69,202 ANNUAL DEBT SERVICE = 1st and 2nd mortgage

Cash flow before taxes is $-545.00
Tax liability -1,626
Cash flow after taxes =$-2,000.95

This is assuming you will not spend anything on maintenance or management. This is just stating your vacancy and debt service.


If you put 5% down = $37,500 your total income after debt is = +$569.70

Also remeber this is just for the first year. as years progress everything changes!

I forgot to mention…

your return on your investment for the 5% or $37,500 down is 7.7% cash on cash return. If you had no maintenence cost.

Carlos,

I think you may have misssed the part that said that he thought he could get it for $500K event htough it was listed at $750K…

Keith

Oops,

Here is the numbers if you get it for 500k

Net Income $68,628
-Annual Debt Service $46,134

  • tax liability $7,356
    =Cash flow After Taxes $15,136 and raises every year about $1,200 year after year.

Good income if you can keep your expenses down.

Carlos, is the 1200 what you are figuring per month? or for a year?..like i also said, i wouldnt pay more than $500,000 for it, but the next hurdle is how am i to attain financing for this since its a commercial property. Since i dont have anything to put down, im probably not going to be able to go through with it…i’d love to do it though cuz i think it will generate a very positive income

also carlos, How did you figured the net income to only be 68,000? If i figue a 20% vacancy, which is 5 units…assuming they are all 2 br units, that is 13* 365 = 4,745 plus 1 br = 6*345 = 2,070 for a total of 6,815 per month * 12 months =$81,780 p/year

Princ. & Interest @ 8.5% = $3900
Taxes @ $13,500 per year or $1125 per month
Insurance @ $300 per month ( I have no clue on this, maybe high, or lower)
Total = $5325 per month out

Gross operating income is $82944/year after deduct 20% vacancy.

If above data is correct, then the operating expense is only ($5325-$3900) x 12 = $17100/Year.,It is only about 20% of the gross operation income, which is considerably low comparing to normal ratio. If you can keep expense this low, then it will be a winner. I would do more DD on the expense data. The breakeven point is 45% operating expense to income ratio.

Is this 24-plex in your local? Any planning improvement/fixer expense after the purchase?

Howdy Black95GT:

No one mentioned utilities that I noticed. Is the water and electric and gas etc all paid by the tenants? If not this may cost up to $1000 per month.

The 1,200 is increase is per year for example
15,000 first year
16,200 second year and so on.

Gross schedule income: 103,680

  • 15% vacancy 15,552
  • Annual Operating Exp. 19,500
    ------------------------------ =68,628

Remember again, this is with no management or utilities as explained by Ted.

I found it very difficult to get started as well in Multi-Units with no cash.
So I started with a condo and single family first. next month I will buy my 2-5 family house. there is a course that I took by Dave Lindahl great course helped with numbers and details, however I dont have that much cash right now to make it profitable.

Carlos, You said you started witha condo. how much profit do you make per month off of that after all expenses? I know alot of people are happy with $100 on SFH. I let a 4-plex go a few months ago that would of profited about $250-350 per month…actually i could probably get that still if i wanted to pursue it.

Actually I just sold the condo. I Netted about $7,000 after taxes.
I had to sell because I was at -$120 a month.

Right now I only have 1 single family, that I live in.
Im working on a 3 unit & store front. cash flow of about $250-$400.

I would say anything above $200 a month is a winner.

What does your portfolio consist of?

i have 1 SFH that i rent out and profit $25 per month after everything. This is only because i refi. my credit cards so they could be tax deductible and somebody else could pay for my idiotic college mistakes (Spent lot of time at the bar). I also own another house that i am rehabbing. I should have this done in 2 weeks and hoping for a $20,000 profit. I am also looking at building a spec house in a subdivision that we just got done doing (I am a civil engineering technician). I will see how these spec houses go and maybe start doing a few of these every year.

That’s great, Can’t wait to refi this house because I will open my business next month and have to wait awhile to qualify for a refi.

I am looking into Lease option now, currently I am reading a free ebook by last week’s speaker on this page.