Author Topic: Multi family deal analysis - hold or sell? [Updated Mar 2023]  (Read 8134 times)

Archipelago

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4-unit apartment building off market.
(1) one bedroom unit
(1) two bedroom unit
(2) three bedroom units

Purchase price: $250k
25% downpayment = $62,500 @ 4.5% 30 year fixed
Closing costs: $5,000
Improvements: $40,000
ARV: $310,000

Monthly rent: $3350

P&I: $950
Taxes: $600
Insurance: $150
Management: $330
2.3% vacancy: $77
CapEx: $320
Utilities: $50
Lawn and snow: $100
Expenses total: $2577

Cashflow: $760/month
Cash on Cash Annualized ROI: 8.5%

Other factors:
There's an asbestos boiler and piping in the basement, as well as some lead paint on windows. Town has a rehab program which I could apply for funding as long as half the units are offered to low/moderate income tenants. Tenants in place already fall within the income thresholds. There's potential to receive anywhere from $5,000-$40,000 of the repair work done by the town at no cost. The property checks all of the right boxes to put together a competitive application.

The property is located a half mile from my other rental, making it possible to self-manage and pay myself the management fee.

If I were to put the units under the Section 8 program, the 3 bedrooms would produce $1500/month each. They are currently renting for $900/month.

After improvements and raising rents to market value at conservative levels:
Rent: $4,300
Expenses: $2577
Cashflow: $1593/month
Annual ROI: 17.8%

Please tear this deal apart and let me know what I'm missing. Thank you!
« Last Edit: March 09, 2023, 09:11:02 AM by Archipelago »

waltworks

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Re: Multi family deal analysis
« Reply #1 on: May 05, 2020, 10:08:12 PM »
It would look fine if there weren't a pandemic on. I wouldn't buy anything right now no matter what. Who knows who's going to be able to pay their rent in 6 months?

-W

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Re: Multi family deal analysis
« Reply #2 on: May 06, 2020, 02:40:22 AM »
I'd be looking at the prospects of the town as a whole, taking into account economic, social, environmental and covid-19 issues: it is going to be a thriving, or at least surviving at current population levels, place for the next 30 years (the length of your mortgage)?  What about the district it is in: is that going up or down and what are the risks?

A town rehab program is a positive - there is investment going into the town - but does also mean that the town is not currently attracting that sort of investment on its own account.

This is a long-term purchase, so I wouldn't necessarily stay away just for covid-19 issues if you think that they will be over and done with in a year or two, but it does add a current extra risk which I would hope is factored into the purchase price.

Archipelago

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Re: Multi family deal analysis
« Reply #3 on: May 06, 2020, 07:59:06 AM »
It would look fine if there weren't a pandemic on. I wouldn't buy anything right now no matter what. Who knows who's going to be able to pay their rent in 6 months?

-W

Would you still say it's risky, even putting the property under Section 8? This would mean 75% of rental payments are covered by the town/state.

waltworks

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Re: Multi family deal analysis
« Reply #4 on: May 06, 2020, 08:06:20 AM »
IMO, yes. I'd wait to see how things shake out a bit. If the town is doing poorly enough, even section 8 tenants will move away.

I personally think there is a decent chance of screaming deals out there in the next few years because of Covid19 (I hope I'm wrong). This isn't terrible, but it's not a screaming deal either - and I'd say your vacancy (2.3%?) and capex/maintenance numbers are way low.

-W

Papa bear

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Re: Multi family deal analysis
« Reply #5 on: May 06, 2020, 08:06:49 AM »
Hard to tear this apart.  Solid case study, looks like a solid place on paper.

I think taxes seem high. 7200 annual for a 250k purchase? Is that on par with the area or can you have those adjusted down after a purchase?

Any additional local laws associated with multi family like this? In our metro area, 3+ units have to pull permits for commercial, not residential, making any changes much more expensive. 

It sounds like you’re knowledgeable on section 8.  I don’t have any of those properties, but they seem like a fair way to go as long as you can stay in compliance. 


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Jon Bon

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Re: Multi family deal analysis
« Reply #6 on: May 06, 2020, 10:28:36 AM »
Deal looks fine to me.

But if you had to bet, would you think housing prices well be more or less in six months?

Are evictions and delinquent rent payments going to be higher or lower in six months?

I would wait a bit. No need to hurry.

waltworks

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Re: Multi family deal analysis
« Reply #7 on: May 06, 2020, 10:33:19 AM »
Prices are super sticky. I'd wait a year or two for best deals.

-W

Archipelago

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Re: Multi family deal analysis
« Reply #8 on: May 06, 2020, 01:28:09 PM »
How can we be certain that house prices are going to crash? If they do, how much will they crash? Then, how will multi family be affected compared to single family? If people start defaulting on their mortgages due to COVID, would we not expect rentals to increase in demand?

Deal looks fine to me.

But if you had to bet, would you think housing prices well be more or less in six months?

Are evictions and delinquent rent payments going to be higher or lower in six months?

I would wait a bit. No need to hurry.
Less, but I also am not one to say I can time the market. The analysis is based on cashflow. The equity capture is an added bonus, but not guaranteed.

Hard to tear this apart.  Solid case study, looks like a solid place on paper.

I think taxes seem high. 7200 annual for a 250k purchase? Is that on par with the area or can you have those adjusted down after a purchase?

Any additional local laws associated with multi family like this? In our metro area, 3+ units have to pull permits for commercial, not residential, making any changes much more expensive. 

It sounds like you’re knowledgeable on section 8.  I don’t have any of those properties, but they seem like a fair way to go as long as you can stay in compliance. 


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Yes, taxes are very high in my area. And there are more social safety net programs as well.

IMO, yes. I'd wait to see how things shake out a bit. If the town is doing poorly enough, even section 8 tenants will move away.

I personally think there is a decent chance of screaming deals out there in the next few years because of Covid19 (I hope I'm wrong). This isn't terrible, but it's not a screaming deal either - and I'd say your vacancy (2.3%?) and capex/maintenance numbers are way low.

-W
The vacancy rate is based on 1 unit being vacant per year. This matches the performance of my other 4-family located 1 mile away, over a 3 year period. The CapEx budget also matches over the same history, assuming I put some money into short term repairs.

I would say this is a decent deal, but the prospect of getting up to $40k in repair costs paid for by the town is what makes it a good deal. My area is very difficult to find multi family at numbers that work. There are people (still, even with COVID) paying $220k for duplexes, in not so good sections of town. I have sent thousands of letters and looked at many properties. This would be a tough one to pass up.

If house prices do crash (and the stock market does as well), but this property still produces a 17% CoC return, isn't that pretty good?
« Last Edit: May 06, 2020, 01:34:50 PM by Archipelago »

waltworks

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Re: Multi family deal analysis
« Reply #9 on: May 06, 2020, 01:58:28 PM »
If residential RE prices crash, there's no guarantee that rental rates will hold up like they did last time around.

Again, the deal is fine. I still think you are going to see higher vacancy and maintenance costs but even so it's fine.

But there is a very good chance you can get a better deal in a year or two, and there's a nonzero chance that rental rates crater (what if every Airbnb gets turned back into long term housing? What if your city implements super strict rent controls as part of the pandemic response? What if everyone is allowed to put a tiny house/ADU in their backyard and the local housing supply goes way up?)

Around here all the working class/poor folks have moved in together. As in, 20 people in 1 apartment that used to live in 4 or 5. What would happen in your area if that became the new normal?

The uncertainty in the RE market is just nuts right now. Literally nobody knows what is going to happen. That's why despite the insane VIX numbers and stock market gyrations mortgage rates are still hovering in the mid-3's. Nobody wants to stick their neck out. Nobody is listing houses, nobody is selling houses, nobody is buying houses. How long will that go on? Nobody knows.

-W


Archipelago

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Re: Multi family deal analysis
« Reply #10 on: May 13, 2020, 07:37:46 PM »
Following up...I'm going through with the deal. I agree with the general sentiment of the responders in this thread, but there are some major factors prompting the decision to move forward:

1. I'm 25 years old, so I'm able to weather the market dips
2. This property is located a half mile away from my other rental, which means it's significantly easier to manage (plus economies of scale).
3. I spoke with the owner and a plan is already in place to have 1 seamless tenant turnover, along with a rent increase.
4. I'm getting a good deal to refinance my current house plus buy the new property. Excellent interest rates.

I'm not sure if this is the best decision, but it's a calculated one.

affordablehousing

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Re: Multi family deal analysis
« Reply #11 on: May 14, 2020, 04:03:01 PM »
Seems like a good deal to me. I'd say do it. Poor people will always need a place to live and have little ability to move away. Get it to Section 8 and it should be a cashcow.

SndcxxJ

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Re: Multi family deal analysis
« Reply #12 on: May 15, 2020, 07:38:28 AM »
I wouldn't have a problem buying in the pandemic, but obtaining a loan might be a slower process than normal.  I don't expect real estate prices to drop in the near or midterm, it is looking like prices are going to rise over the next year in my area of the Bay Area of CA.  The rent prices are a bit of a different story as we might see those declining a bit.  2.3% vacancy is a bit low compared to general historical norms, a 5% is a rule of thumb, but I too have been running about 2% or a little less for the last few years but that's not typical.  If it is a good deal for the area, and you have the cash to make it happen, and if you have the time to self manage, and you have some experience in real estate, and you are slightly conservative with your financial analysis, then it is going to be hard for anyone to tear it apart and you should move forward.

PMJL34

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Re: Multi family deal analysis
« Reply #13 on: May 19, 2020, 09:44:17 PM »
It sounds like you are moving forward. Good for you and we wish you the best. You are young and I applaud you for your hustle. You are very familiar with the area so that's huge plus.

Are you sure 40k is the only cost to get it up to par? How would you feel if you don't get reimbursed for the 40k of work? Would you say this is a C or lower neighborhood. Are you sure that the current tenants are even paying rent? Do you know why the current owner is selling? 

Have you dealt with section 8? I love section 8 (especially during COVID). However, with section 8 tenants, please up the CAPEX significantly (I would say your vacancy is too low as well). 3 bedroom units most likely mean families and not a gentle single grandma. Also, make sure you ask how much the tenant's portion of rent is before accepting them. Lastly, section 8 does not always pay max rent advertised. Are you sure that your units will be able to charge $1500?

Also, what is your income and reserves like? Assuming those two are good, you should be just fine!

Cheers!
« Last Edit: May 19, 2020, 09:51:10 PM by lilbenny34 »

Archipelago

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Re: Multi family deal analysis
« Reply #14 on: May 23, 2020, 03:13:58 PM »
It sounds like you are moving forward. Good for you and we wish you the best. You are young and I applaud you for your hustle. You are very familiar with the area so that's huge plus.

Are you sure 40k is the only cost to get it up to par? How would you feel if you don't get reimbursed for the 40k of work? Would you say this is a C or lower neighborhood. Are you sure that the current tenants are even paying rent? Do you know why the current owner is selling? 

Have you dealt with section 8? I love section 8 (especially during COVID). However, with section 8 tenants, please up the CAPEX significantly (I would say your vacancy is too low as well). 3 bedroom units most likely mean families and not a gentle single grandma. Also, make sure you ask how much the tenant's portion of rent is before accepting them. Lastly, section 8 does not always pay max rent advertised. Are you sure that your units will be able to charge $1500?

Also, what is your income and reserves like? Assuming those two are good, you should be just fine!

Cheers!

Thank you. This is a Class B neighborhood. The owner is selling because he has had the place for 15 years and doesn't want to deal with it anymore. He's one of the most honest people I've ever met. He's even found a new tenant for higher rent to replace a tenant moving out in the next month. Met the new tenant, qualified with flying colors and has good character. He's actually best friends with another tenant that lives downstairs, and the other tenant is a model tenant.

Most of the repairs are in the form of boiler upgrades. They don't need to be replaced right away, but they're coming up to the end of their useful lives. Other than that, it's cosmetic work on the interior.

Re: Section 8 - yes my CapEx and repair budget is much too low. Section 8 pays for 75% of the rental payment, and the tenant pays the remainder. Section 8 rent estimates are what I'm using based on the geographic estimate (which is posted on the town website).

2.3% vacancy is 1 of the 4 units vacant for 1 month out of the year. This is what my other 4 family has been over 3 years, but I think bumping it up to 4.6% is a good idea to be conservative.

Income is approximately $120k/year. About $100k in reserves.

rmorris50

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Re: Multi family deal analysis
« Reply #15 on: May 24, 2020, 09:08:18 AM »
As a newbie to real estate, I am researching if getting into being a landlord is something for me. So I found this thread very informative.

Question on duplexes - how often do you find them to be way overpriced or just out of wack with the market? I found a 3100 SQ duplex property that has 4 small units, each a 2/1 and 775 SF. Each unit from what I can tell is renting for about $900. Seems about right given my market research. However, the property is for sale for $739,000! My analysis says I should pay half that. The property is recently updated and probably mostly turnkey, but newly renovated 1400 SF houses in the area are renting for $1400 a month. So again the rental prices seems about right.

My question is how common is it for duplexes or other rentals for sale to be out of whack like this? Or what am I missing?

I've definitely bookmarked the property because I'll be curious to if/how much the price comes down before it sells. Especially with the repercussions of pandemic going on.

Archipelago

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Re: Multi family deal analysis
« Reply #16 on: May 26, 2020, 01:26:50 PM »
As a newbie to real estate, I am researching if getting into being a landlord is something for me. So I found this thread very informative.

Question on duplexes - how often do you find them to be way overpriced or just out of wack with the market? I found a 3100 SQ duplex property that has 4 small units, each a 2/1 and 775 SF. Each unit from what I can tell is renting for about $900. Seems about right given my market research. However, the property is for sale for $739,000! My analysis says I should pay half that. The property is recently updated and probably mostly turnkey, but newly renovated 1400 SF houses in the area are renting for $1400 a month. So again the rental prices seems about right.

My question is how common is it for duplexes or other rentals for sale to be out of whack like this? Or what am I missing?

I've definitely bookmarked the property because I'll be curious to if/how much the price comes down before it sells. Especially with the repercussions of pandemic going on.

Hi rmorris50,

[Incoming biased opinion, so take with a grain of salt]

All the time! There are duplexes in the same county as the property in this thread listed for $400-450k that gross $2800/month in rent with $10k annual tax bills. Those properties lose money. The people buying them are essentially losing money each month and banking on appreciation. To that I say, let others make bad deals and when the next recession rolls around (which cannot be predicted, much like the stock market, case in point COVID-19), we'll be the ones buying those same properties at a deep discount.

Finding good properties very much follows the 80-20 rule. Most properties are average or below average performing. The top performing properties tend to be just a handful. And those properties tend not to hit the market. Why not? Because most owners don't just around selling great properties. Can they will be found on the market? Sure. But you'd better have an all cash offer ready to go, and good luck bidding against the next dozen cash buyers.

Some case study metrics in case you're interested. There are approximately 1800 multi family properties in my town. I sent 500 letters in only the areas I'm interested in. Roughly 3% response rate, looked at 6 properties in person, and I'm buying 1 of them.


Feel free to PM me if you have any other questions or want to chat.
« Last Edit: May 26, 2020, 01:30:43 PM by Archipelago »

BicycleB

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Re: Multi family deal analysis
« Reply #17 on: May 28, 2020, 08:13:59 PM »
Good luck with your new apartments, @Archipelago!

I was going to say the same thing as lilbenny34, but he already told you and you are moving ahead. Posting in case of updates.

Archipelago

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Re: Multi family deal analysis
« Reply #18 on: May 28, 2020, 08:53:28 PM »
Thank you! Looking like a 90-120 day closing for now. Seller is willing to wait as long as needed. I'll post updates.

Steeze

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Re: Multi family deal analysis
« Reply #19 on: May 31, 2020, 11:37:25 AM »
Ptf - let us know how this performs. Interested in the renovations too.

rothwem

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Re: Multi family deal analysis
« Reply #20 on: June 02, 2020, 05:38:42 PM »
Your numbers sound good and I don’t want to be a Negative Nancy, but if you’re getting Section 8 tenants, you’re not in Class B. Plan accordingly.

Archipelago

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Re: Multi family deal analysis
« Reply #21 on: June 02, 2020, 08:39:28 PM »
Your numbers sound good and I don’t want to be a Negative Nancy, but if you’re getting Section 8 tenants, you’re not in Class B. Plan accordingly.

I'm not committed to getting Section 8 tenants. Neither is the town rehab program contingent on renting to Section 8 tenants, just 50% of the units provided for low to moderate income households (threshold is around $72k for a family of 4). Section 8 is just a streamlined method of meeting the income requirements if I decided to move forward with the rehab project and have it paid for by the town.

rothwem

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Re: Multi family deal analysis
« Reply #22 on: June 03, 2020, 06:13:48 AM »
Your numbers sound good and I don’t want to be a Negative Nancy, but if you’re getting Section 8 tenants, you’re not in Class B. Plan accordingly.

I'm not committed to getting Section 8 tenants. Neither is the town rehab program contingent on renting to Section 8 tenants, just 50% of the units provided for low to moderate income households (threshold is around $72k for a family of 4). Section 8 is just a streamlined method of meeting the income requirements if I decided to move forward with the rehab project and have it paid for by the town.

I guess I didn't state clearly enough what I meant.  Basically, if 100% section 8 FMR will cover the market rent of your units, you're likely not in a class B neighborhood.  This is based off of my experience in Raleigh, NC.  Your state may be different. 

Archipelago

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Re: Multi family deal analysis
« Reply #23 on: June 09, 2020, 08:15:51 PM »
Your numbers sound good and I don’t want to be a Negative Nancy, but if you’re getting Section 8 tenants, you’re not in Class B. Plan accordingly.

I'm not committed to getting Section 8 tenants. Neither is the town rehab program contingent on renting to Section 8 tenants, just 50% of the units provided for low to moderate income households (threshold is around $72k for a family of 4). Section 8 is just a streamlined method of meeting the income requirements if I decided to move forward with the rehab project and have it paid for by the town.

I guess I didn't state clearly enough what I meant.  Basically, if 100% section 8 FMR will cover the market rent of your units, you're likely not in a class B neighborhood.  This is based off of my experience in Raleigh, NC.  Your state may be different.

I see what you mean now. Section 8 in my area covers 75% of FMR. On $1500, that's $1125. Tenant is responsible for the rest.

Archipelago

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Re: Multi family deal analysis
« Reply #24 on: September 09, 2020, 09:10:29 PM »
A little update here. Deal was delayed because of a falling out with a mortgage broker. Expected to close late September. The appraisal came in at $277k. So there is some immediate equity.

I did decide to move forward with the town funding rehab application. It would be silly not to at least try.

Original numbers are largely the same. 3.5% down, 1 point, around $7k in closing costs. Same tenants and rent roll.

« Last Edit: September 09, 2020, 09:12:21 PM by Archipelago »

Archipelago

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Re: Multi family deal analysis
« Reply #25 on: September 09, 2020, 09:21:02 PM »
Interestingly enough, the market in my area has blown up with people from nearby major northeast cities coming to the state. Hot seller's market at the moment. Not what I would've expected, but here we are. *shrugs*

srad

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Re: Multi family deal analysis
« Reply #26 on: September 09, 2020, 09:43:18 PM »
This still looks like a good deal.  Even if half of your tenants don't pay, you should be able to float this for a long time. Just be sure you have plenty of reserves in the bank for the when/if the sh1t hits the fan.  We all keep waiting for the rents to stop coming in but for me and the landlords i know, that hasn't happened yet... 

Archipelago

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Re: Multi family deal analysis
« Reply #27 on: December 29, 2020, 07:50:58 PM »
Closed in September and immediately made some property updates. Town rehab program is on hold. I'm exploring energy assistance programs for mechanical upgrades (heating systems, windows, insulation, etc). Tenants at the property qualify for assistance without any issues. Property is still under rented but I'm okay with it for now. Property still cashflows as anticipated.

Had a storm incident a few weeks after closing where several large trees fell down and crushed a tenant's car. DIY'd the tree removal and covered the tenant's deductible. Things are fine so far, no complaints.

BicycleB

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Re: Multi family deal analysis
« Reply #28 on: December 29, 2020, 08:13:37 PM »
Thanks for the update, glad it's working out so far.

Re-reading briefly, how come utilities are only $50/mo for four apartments? I missed that the first time but pay more than that for just my 1370 sq ft house.

PMJL34

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Re: Multi family deal analysis
« Reply #29 on: December 29, 2020, 09:22:52 PM »
Thanks for the update Archipelago!

What immediate updates did you make?

I love the DIY tree removal and awesome of you to cover the tenant's deductible!

Archipelago

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Re: Multi family deal analysis
« Reply #30 on: December 29, 2020, 09:24:47 PM »
Thanks for the update, glad it's working out so far.

Re-reading briefly, how come utilities are only $50/mo for four apartments? I missed that the first time but pay more than that for just my 1370 sq ft house.

Tenants all pay their own utilities. It's really just the water bill.

Archipelago

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Re: Multi family deal analysis
« Reply #31 on: December 29, 2020, 09:28:57 PM »
Thanks for the update Archipelago!

What immediate updates did you make?

I love the DIY tree removal and awesome of you to cover the tenant's deductible!

Got rid of tons of overgrown shrubs, removed satellite dishes that no one uses anymore, repaved the worst section of the driveway. Cleaned out the basement, took loads of crap laying around outside to the dump. Fixed water meter that hadn't been working in 3 years. Next will be to install solar powered lights for a garage/outbuilding that has no power.

Then will come the high dollar upgrades like heating systems and windows. Hoping to get some of this covered by energy assistance. Let's hope that can happen.

PMJL34

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Re: Multi family deal analysis
« Reply #32 on: December 29, 2020, 09:35:51 PM »
Nice! Yeah, those all sound like low cost, but big improvement items! I love throwing stuff away and improving the curb appeal.

If you removed satellites from the roof, make sure you caulk the holes.

I hope you fixing the water meter doesn't adjust your rate :) I'm very jealous of your low water costs. I pay 125/month per door here.

I don't see a rush on the big ticket items, take your time with it and hopefully it's covered by the assistance!

Happy New Year!

 

fishnfool

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Re: Multi family deal analysis
« Reply #33 on: December 29, 2020, 09:48:44 PM »
Sounds like a solid investment you made on this property, way to go!

Archipelago

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Re: Multi family deal analysis
« Reply #34 on: December 31, 2020, 08:27:45 PM »
With the housing market the way it is, does it make sense to flip and sell this property? Any thoughts? Multi family housing is extremely hot right now.

The house nets $1k/month. That's $60k over 5 years. Which could be double over the same time period if the place is stabilized + market rents.

Archipelago

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Re: Multi family deal analysis
« Reply #35 on: January 30, 2021, 11:48:40 AM »
8 month follow up. I applied for and received funding for heating system upgrades, new triple pane windows and insulation. It's a massive windfall so I got pretty lucky there. Energy bills I expect to decrease around 30% once the upgrades are complete.

I'm having an abatement contractor take care of the asbestos right before the new heating systems are installed. I'm estimating this will cost between $2000 and $3000.

Monthly repair/CapEx budget is significantly higher than what I said in the original post (Walt was spot on per usual). Having those upgrades done however will help reset the CapEx life cycles and lower costs.
« Last Edit: January 31, 2021, 01:03:07 PM by Archipelago »

Papa bear

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Re: Multi family deal analysis
« Reply #36 on: January 30, 2021, 12:47:29 PM »
With the housing market the way it is, does it make sense to flip and sell this property? Any thoughts? Multi family housing is extremely hot right now.

The house nets $1k/month. That's $60k over 5 years. Which could be double over the same time period if the place is stabilized + market rents.
How much do you have in the place and what is the market value now?   An update on some numbers would help here. 

You could always pull some equity out of the place with a cash out refi, kind of a middle ground. 


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Archipelago

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Re: Multi family deal analysis
« Reply #37 on: January 31, 2021, 01:09:01 PM »
With the housing market the way it is, does it make sense to flip and sell this property? Any thoughts? Multi family housing is extremely hot right now.

The house nets $1k/month. That's $60k over 5 years. Which could be double over the same time period if the place is stabilized + market rents.
How much do you have in the place and what is the market value now?   An update on some numbers would help here. 

You could always pull some equity out of the place with a cash out refi, kind of a middle ground. 


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Purchase price: $250k
$62,500 down payment
$70,000 factoring in closing costs

Short term repairs: $2000 (since closing in October)
Abatement: $2000-$3000

Estimated market value after abatement and mechanical upgrades: $310k
Estimated market value after cosmetic updates and bringing rents to market value: $340k (possibly more depending on market conditions)

PMJL34

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Re: Multi family deal analysis
« Reply #38 on: January 31, 2021, 06:24:33 PM »
OP,

That's awesome that you were able to get approved for the upgrades. That's huge! Is it truly $0 out of pocket?

Curious, are triple pane windows normal in your area? Sounds expensive and no one around me has them. 

I don't think you have built enough equity to be able to make this a profitable flip. I'd just keep it for now if I were you, unless you just want to get rid of it.




Papa bear

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Re: Multi family deal analysis
« Reply #39 on: January 31, 2021, 07:38:54 PM »
My vote is to keep the property, refinance and cash out for the extra equity.  Looks like it would still be a solid cash flow and you can pocket the difference for other investments.


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Archipelago

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Re: Multi family deal analysis
« Reply #40 on: January 31, 2021, 09:35:56 PM »
OP,

That's awesome that you were able to get approved for the upgrades. That's huge! Is it truly $0 out of pocket?

Curious, are triple pane windows normal in your area? Sounds expensive and no one around me has them. 

I don't think you have built enough equity to be able to make this a profitable flip. I'd just keep it for now if I were you, unless you just want to get rid of it.

Yes, it is $0 out of pocket. I'm still having a hard time believing it all.

Triple pane windows are not the norm around here. Some of the house's windows are still originals, going from single to triple pane.

The place requires more attention than my other rental, but there's obviously a lot more deferred maintenance. The energy upgrades are going to address the top 80/20 rule issues going on. I think the right move is to keep here and stabilize the property.

Archipelago

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Re: Multi family deal analysis
« Reply #41 on: January 31, 2021, 09:38:14 PM »
My vote is to keep the property, refinance and cash out for the extra equity.  Looks like it would still be a solid cash flow and you can pocket the difference for other investments.


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Definitely an option worth looking into in a few months from now.

Archipelago

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Re: Multi family deal analysis [Updated Dec 2021]
« Reply #42 on: December 02, 2021, 11:46:14 AM »
Here's an update and some new numbers. I'm reevaluating whether it might make sense to sell in the spring.

Purchase price: $250k
25% downpayment = $62,500 @ 3.5% 30 year fixed
Closing costs: $5,000
Improvements: $10,000 so far (plus $15,000 allocated in the spring for chimney + roof work).

Monthly rent: $3975

P&I: $842
Taxes: $650 (might increase substantially in '22)
Insurance: $272 (this would lower by $50 after roof and chimney repairs are done)
Management: $387
2.3% vacancy: $89
CapEx: $300
Repairs: $300
Utilities: $50
Lawn and snow: $125
Expenses total: $3015

Down payment + $25k improvements + $5k closing costs = $92,500 invested.
Cashflow: $960/month
Cash on Cash Annualized ROI: 12.4%
Estimated property value: $350k - $380k (higher end of that if I get a rent increase agreement built into next year's leases). Rents can still increase by $500/month overall to get closer to market value. In that case, cashflow goes to $1410/month or 18.3% annual ROI.

Equity after potential sale and transaction costs: $150-$170k

Any thoughts on holding or selling the place?
« Last Edit: December 02, 2021, 11:50:06 AM by Archipelago »

BicycleB

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2021]
« Reply #43 on: December 02, 2021, 04:05:51 PM »
Do you have something better to do with the money?

PMJL34

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2021]
« Reply #44 on: December 02, 2021, 04:42:49 PM »
I agree with Bicycle B. If there is nothing better, then hold. It's still a solid rental.

It's also fully understandable if you want to sell it to simplify and put the proceeds into index funds.

Couple of observations/questions:

1. What $$$ number range are you talking about when you say taxes "might increase substantially in '22"?

2. Do you really pay $1500/year for snow removal?

3. Property management is killing your cashflow.

4. Rents are what you are getting, not what you COULD get. If rents can truly be increased by $500 do it right now.

5. Capital improvements will literally wipe away the next 1.5 years of profits. I doubt you will be able to get roof and chimney done for $15k for a 4plex. It will be more imo.

Archipelago

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2021]
« Reply #45 on: December 02, 2021, 08:43:44 PM »
Do you have something better to do with the money?

The plan would be to invest it in another business. For example, the wholesale business I'm running is clearing $1-2k/week and the equity from the property would support increasing the business (which can be cash intensive).

Archipelago

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2021]
« Reply #46 on: December 02, 2021, 09:16:50 PM »
I agree with Bicycle B. If there is nothing better, then hold. It's still a solid rental.

It's also fully understandable if you want to sell it to simplify and put the proceeds into index funds.

Couple of observations/questions:

1. What $$$ number range are you talking about when you say taxes "might increase substantially in '22"?

2. Do you really pay $1500/year for snow removal?

3. Property management is killing your cashflow.

4. Rents are what you are getting, not what you COULD get. If rents can truly be increased by $500 do it right now.

5. Capital improvements will literally wipe away the next 1.5 years of profits. I doubt you will be able to get roof and chimney done for $15k for a 4plex. It will be more imo.

1. Not sure yet. The town just reevaluated all properties and the appraisal value increased significantly. Assuming mill rate doesn't change, taxes could be going up as much as $2k/year. 25% increase...yikes. They say not to multiply the new assessed value by the current mill rate, but I'm pretty much assuming the worst here.

2. That's snow removal, cutting the grass, and fall cleanup.

3. PM is killing your cashflow even if you DIY it. PM is always a fee, even if you pay yourself that fee. Because your time is never worth $0.

4. If tenants retaliate, they can decide not to pay rent. And you can't file an eviction with a moratorium in place. And even if you do file an eviction, the courts are backed up for 6+ months. So I'd rather spread the increase over a time period rather than just arbitrarily raise tenants' rent a whole lot. First year increase was $100/month. Second increase will be roughly $200/month per unit. I think that's fairly reasonable.

5. That work is not for the entire roof, just one section of it. Plus the chimney repairs.
« Last Edit: December 02, 2021, 09:21:20 PM by Archipelago »

Archipelago

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2021]
« Reply #47 on: December 16, 2022, 01:58:17 PM »
2-year update:

One of the tenants we evicted earlier this year. It went somewhat smooth and there was a loss around $5600 in unpaid rent, vacancy during renovation, and legal fees. The unit was renting for $775/month. That unit has been renovated and will produce $1250/month.

We filed an eviction against another tenant and don't expect the process to go nearly as smooth. Lot of rough patches to work through, the tenant hired legal counsel to fight it, and also stopped paying rent a few months ago. We will probably lose around $7200 between unpaid rent, vacancy during renovation, and legal fees. That unit was renting for $1100/month and will produce $1600/month once renovated and rented again.

I had known these tenants would be problematic when going into the deal. Once this pending eviction takes place, this should hopefully be the last of tenant woes.

Updated numbers:
Purchase price: $250k
25% downpayment = $62,500 @ 3.5% 30 year fixed
Closing costs: $5,000
Improvements: $45,000

Monthly rent: $5000 (after 2 evictions and 2 renovated apartments)

P&I: $842
Taxes: $650
Insurance: $272
Management: $500
2.3% vacancy: $115
CapEx: $250
Repairs: $200
Utilities: $50
Lawn and snow: $125
Expenses total: $3004

Down payment + $45k improvements + $5k closing costs = $112,500 invested.
Cashflow: $1996/month
Cash on Cash Annualized ROI: 21.3%

Additional management fee paid to me: $500/month (this comes out to around $63/hr for 8 hours of my time per month).
Renovations I am DIYing and have not factored in my time into the deal.
Estimated property value: $360k - $380k (higher end of that if I get a rent increase agreement built into next year's leases).
Equity: $160-$170k
« Last Edit: December 16, 2022, 02:00:40 PM by Archipelago »

PMJL34

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2022]
« Reply #48 on: December 16, 2022, 03:27:34 PM »
I love it! Thanks for sharing and happy to hear that you will see more profits soon. 

I'd be interested in a cashflow analysis over the last 2 years as well. Those two evictions certainly hurt, but like you said the aftermath will be sweet.

Best of luck!

sammybiker

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Re: Multi family deal analysis - hold or sell? [Updated Dec 2022]
« Reply #49 on: December 19, 2022, 06:36:56 AM »
Well done @Archipelago