Author Topic: Case Study - Sell or rent Triplex  (Read 469 times)

kevinfc

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Case Study - Sell or rent Triplex
« on: May 30, 2018, 03:08:26 PM »
Hey Guys,

Here are the details for a triplex we own, its got a 3br, 2br, and 1br unit.
We lived in the 3br for a few years but moved out last summer. Its located in upstate NY so the taxes are ridiculous.

I have 2 main questions/areas of concern.

1. Estimating expenses. My estimates are way different than what the 50% rule would suggest. Does my estimate seem reasonable?
2. There are large deferred maintenance expenses that need to be addressed within the next few years. Considering them, and the cash flow, do you think we should keep the property or sell it?

Deferred MaintenanceEstimated Cost
Roof$15k
Vinyl Siding$30k
Boiler$6k

Here is my estimated cash flow:

ExpenseYearly Expense  Notes
lawn care$800
Snow plowing$1500Awkward driveway makes this a bit expensive
Water and Sewer$800
Electricity$1000Includes landlord paying for electric in 3br unit.
Natural Gas$800Landlord pays heat for all units
Vacancy$2000
Repairs & Maintenance$3500
Legal$500
Taxes$6500
Insurance$1550Cheapest insurance I could get
Property Management$3250Estimated as 10% gross rents.
Principal and Interest$8500
Total$30,700/yr

UnitMonthly Gross Rent
3br$1300
2br$900
1br$520
Total$2,720/mo, $32,640/yr

This puts me at a cash flow of $160/mo or $1940/yr which is obviously not great, especially considering the deferred maintenance costs.

What makes me question selling it is that if I do the property management and lawn care the cash flow goes up to $500/mo $6,000/yr which is not so bad.

I'm interested in your thoughts. Are my expense estimates okay? How does the increase in property value from doing the deferred maintenance effect the equation? Can i even sell a house with siding/roof that is falling apart?


Other Case Study Info:
Market Value: 165-175k
Original Purchase Price: 170k
Original Mortgage Amount: 136k
Interest Rate: 4.675%
Mortgage Term: 30 years
Term remaining: ~26 years
Amount remaining on mortgage: 126k

Padonak

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Re: Case Study - Sell or rent Triplex
« Reply #1 on: May 30, 2018, 03:19:46 PM »
Where in upstate NY is real estate so inexpensive? Maybe i should move there.

sammybiker

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    • Making 200k in equity in 6mo - Back down the rabbit hole, long distance RE
Re: Case Study - Sell or rent Triplex
« Reply #2 on: May 30, 2018, 05:50:59 PM »
Was thinking you could do better on the roofing and siding prices but then saw the net income.  Sell it.

tralfamadorian

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Re: Case Study - Sell or rent Triplex
« Reply #3 on: May 30, 2018, 06:10:36 PM »
Was thinking you could do better on the roofing and siding prices but then saw the net income.  Sell it.

+1

Those utilities + taxes are a killer.

CptJack83

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Re: Case Study - Sell or rent Triplex
« Reply #4 on: June 03, 2018, 11:44:46 AM »
So if you sold it, after closing costs, you might net about $30,000?   If you are clearing about $2,000/yr that about a 6.5% return on equity/cash-on-cash...not the best.

A good question to ask might be, if you didn't own this house and had the equity sitting in your bank account, would you be buying it if it were for sale?

If you were cash-flowing $6,000/yr that's about 20% return on your equity, which is pretty good, but that sounds essentially like picking up a part-time job that pays $4,000/yr.  Again if you didn't own the house and a friend offered you $4,000 a year to do property management and lawn care for his house, would you say yes?