Author Topic: 3 Family Property Evaluation  (Read 787 times)

Archipelago

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3 Family Property Evaluation
« on: June 12, 2019, 09:00:55 PM »
Purchase Price    $174,900.00
Down Payment %   25.00%
Down Payment Amount    $43,725.00
Interest Rate   4.500% (not yet known)
Loan amount    $131,175.00

Full Rent Amount   $2,945
Yearly Property Taxes    $3,276.00
Expected Vacancy %   2.8%
Management Fees (% of Rent)   10%

Vacancy    $82.46
Taxes (actual)    $273.00
Insurance (quoted)    $125.00
Mortgage    $664.64
Future Management (10%)    $294.50
Cap X    $168.06
Trash    $25.00
Water/sewer/gas/electric/heat:    $240.00
Lawn/Snow Removal    $150.00
Expense totals    $2,022.66

Immediate Repair Estimate    $50,000.00
Closing Cost Estimate    $4,000.00
Total (Down Payment + Short Term Exp)    $97,725.00

Water Heater    $32.14
Roof    $62.50
Kitchen, Bath Fixtures (faucets, tubs, toilets,etc)    $8.75
Internal Paint    $9.38
Flooring    $31.25
Refrigerator    $15.38
Range    $8.65
Cap X totals    $168.06

Cashflow: $922/month
Cash return: 11.3%

Estimated value of property with all the updates, plus increased rent: $250-$275k
Equity capture: $25-$50k

Other important factors:
1. The units are currently under market rent. Realistically they should fetch $3500/month due to 2 major universities in the area. This would boost the cashflow by $500 and bring the annual return to 16.3%
2. The house definitely needs a new roof, though I'm not sure if it needs all new plywood + shingles, or just the shingles. The house is 2600 sq. ft. altogether.
3. It also would benefit from being hooked up to public sewer. But I have no idea how much this would cost. The last sale fell through during the inspection because the septic was questionable. However, the owner said if it didn't sell as is, he'd have the roof done and public sewer connected, then raise the price to $225k
4. It needs all new windows, which I'm estimating would cost about $11k for windows + installation

I'm estimating $15k for the roof, $10k for the sewer, $11k for windows, and $10k for cosmetic updates. Plus another 10% for any unexpected costs. Does anyone know how to ballpark estimate the cost of a roof and a sewer hookup?
« Last Edit: June 12, 2019, 09:03:21 PM by Archipelago »

Archipelago

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Re: 3 Family Property Evaluation
« Reply #1 on: June 12, 2019, 09:01:19 PM »
Paging @waltworks

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Re: 3 Family Property Evaluation
« Reply #2 on: June 12, 2019, 09:09:37 PM »
Where did you get the 4.5 percent rate?  Should be higher for an investment property.

Basis for vacancy?  Won't that increase if you go to market rent?

Call the City for the sewer hook up cost and some roofers for a ballpark estimate for the roof.

Looks like an old property with deferred maintenance and a lot of unknowns.  I would probably pass if it's your first property.


Archipelago

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Re: 3 Family Property Evaluation
« Reply #3 on: June 12, 2019, 10:00:17 PM »
Where did you get the 4.5 percent rate?  Should be higher for an investment property.

Basis for vacancy?  Won't that increase if you go to market rent?

Call the City for the sewer hook up cost and some roofers for a ballpark estimate for the roof.

Looks like an old property with deferred maintenance and a lot of unknowns.  I would probably pass if it's your first property.

No where in particular, just a guess. Iím calling my lender tomorrow.

Vacancy is one unit vacant per year. This is what I use for my 4 family and itís been pretty accurate over the past few years. Market rents could easily be $500 higher collectively. Also, if heat was paid by tenants, thatíd bring another $200/month or so. Thatíd total $1600/month in cash flow for a little less than a 20% return.

It is an older property, around 1900. The current owner also has a business right next to the property, and from everything Iíve read/heard about him, heís got a very good reputation. Heís 77 years old, looking to sell off and retire.

Hmmm

Archipelago

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Re: 3 Family Property Evaluation
« Reply #4 on: June 13, 2019, 02:35:28 PM »
I got in touch with my lender today. He said interest rates were looking high 4s or low 5s.

sammybiker

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Re: 3 Family Property Evaluation
« Reply #5 on: June 13, 2019, 02:54:01 PM »
@Archipelago Sounds like a good deal to me.  Agreed with AR, would budget for ~5.25

I'd also look at trimming some of that rehab budget and really focus on what absolutely must be done, get the property stabilized and do the nice to have stuff as required. 

Do you really need to replace the windows now?  Does the siding need a replacement or can you work on isolated repairs while you shop around for a good bid?

Roof @ $15k looks about 5k too high, even for 2600 sq ft.

You're managing on the ground aka this isn't long distance?

waltworks

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Re: 3 Family Property Evaluation
« Reply #6 on: June 13, 2019, 05:05:22 PM »
I like the analysis, looks like an ok deal... with one big caveat. That is a 120 year old building. I would put quite a bit more into the budget for ongoing maintenance, because lots of things are going to go wrong after that many years (and repairs by random people of unknown competence).

If your $50k is enough to bring everything up to modern code and address all structural/mechanical issues, then disregard.

-W

Archipelago

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Re: 3 Family Property Evaluation
« Reply #7 on: June 14, 2019, 06:37:02 AM »
@Archipelago Sounds like a good deal to me.  Agreed with AR, would budget for ~5.25

I'd also look at trimming some of that rehab budget and really focus on what absolutely must be done, get the property stabilized and do the nice to have stuff as required. 

Do you really need to replace the windows now?  Does the siding need a replacement or can you work on isolated repairs while you shop around for a good bid?

Roof @ $15k looks about 5k too high, even for 2600 sq ft.

You're managing on the ground aka this isn't long distance?

Yes, the plan would be to do nothing cosmetically until someone moves out. Currently, there is a long term tenant (professor) who has been living there for 10 years. The 3 bedroom unit is currently leased, and the last unit also has a long term tenant. I could spend nothing cosmetically and be fine for at least 1 year.

The roof needs all new sheathing and shingles. The roof is not all one, it's got isolated smaller roofs, including flat ones. But it's easy to walk. I'm going to have a couple roofers go by and give me a ballpark.

Siding is asbestos shingles, however it's in good shape and undisturbed. Having that replaced or overlapped with vinyl could wait.

It isn't long distance. It's 20 minutes from my other property.
« Last Edit: June 14, 2019, 06:42:37 AM by Archipelago »

Archipelago

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Re: 3 Family Property Evaluation
« Reply #8 on: June 14, 2019, 06:41:06 AM »
I like the analysis, looks like an ok deal... with one big caveat. That is a 120 year old building. I would put quite a bit more into the budget for ongoing maintenance, because lots of things are going to go wrong after that many years (and repairs by random people of unknown competence).

If your $50k is enough to bring everything up to modern code and address all structural/mechanical issues, then disregard.

-W

Hey Walt, how do you evaluate the overall structural integrity? What I know is that it's a stone foundation with a sump pump. The house sits atop a hill. Basement is a lot of crawl space. There are added supports in the basement for structure.

The house also doesn't have gutters, and I'd put them in when the roof gets done.

waltworks

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Re: 3 Family Property Evaluation
« Reply #9 on: June 14, 2019, 08:02:19 AM »
Hey Walt, how do you evaluate the overall structural integrity? What I know is that it's a stone foundation with a sump pump. The house sits atop a hill. Basement is a lot of crawl space. There are added supports in the basement for structure.

The house also doesn't have gutters, and I'd put them in when the roof gets done.

I'd pay an engineer/foundation repair company to come in and evaluate it. Stone+no gutters could be a very bad thing, or it could be no big deal. If the place is still standing after 120 years it's probably no big deal. But neither of us is a foundation expert so I'd call one in.

You can also look for basic signs of settling (doors that aren't symmetrical anymore from being re-cut/sanded to close properly, floors/walls that aren't straight, cracked lathe/plaster or drywall, etc) on your own.

-W

Archipelago

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Re: 3 Family Property Evaluation
« Reply #10 on: June 25, 2019, 08:54:45 PM »
Not sure if anyone was following, but I ended up passing on this deal. My repair estimate was accurate, but this place was located next to a commercial building, and I didn't see much value to be gained despite investing $60k for repairs. If more equity could be had, it would be a different story.

This was a good deal, but not a great one.