What do you think?

So I am looking at a triplex that is a converted SFR. At first the numbers seemed pretty good:

Asking price - 116K
Monthly Gross Rents - 1,535
Vacancy - 7%

The thing that has me concerned is that the owner pays all utilities and the annual utility cost is $4000 (per current owner)! Is it just me or does that seem extremely high?

I have no problem walking away from this property but wanted to get some input from those of you with more experience before I threw in the towel. If you need more numbers let me know. Thanks.

Brewer

Brewer,

Actually, that utility cost seems low to me. $4000 per year for 3 units is only a little over $100 per unit per month - that sounds low to me.

Here is how I see the numbers:

Gross rents: $1,535
Operating Expenses: $768
NOI: $767

Mortgage: $851
Monthly Loss: $84

I’d pass!

Mike

Can you sweeten the pot by providing shared laundry vending machines for tenants, and partner with a vending company and share in the profits? That could be another $50 a month which should help offset the loss.

Write all of your leases with tenants on a 6 month basis, so you can raise the rents quickly. 3 x rent raises at, say, $25 each = $75 a month in your pocket, which if added to shared laundry = $125 profit per month. That’ll help a lot.

Our position right now is that there will be a HUGE number of foreclosures available to purchase at discounts in the next 12 months, so don’t be too much in a hurry to find the first deal to get. And with the collapse of the sub-prime lending market, more and more people have entered the rental marketspace meaning supply & demand will work in your favor. Don’t sign 12 months leases since its likely there is going to be a lot of headroom in rental price increases in the next couple of years.

Vlad

I avoid properties where you pay all utilities. Its a license for abuse and can kill any potential for profit. Water and trash at most since a lot of cities bill the owner directly for this (no way to shift to the tenents).

Thanks for the advice guys. I agree with avoiding properties where you would be responsible for all utilities, that makes since.

I am still refining my criteria for income properties and all of your advice is appreciated.

Brewer