Multi unit - HELP! - Posted by TomK

Posted by GL(ON) on July 09, 2002 at 22:48:05:

Who cares what the rents are when you have positive cash flow like that?

The market has a tendency to correct, so there is a very strong likelihood of higher rents and higher prices in the future.

In the meantime if you keep buying at those prices you can build up a very substantial income on the rents alone, and own the buildings free and clear in 20 years.

If you could buy a dozen like that you would have a net income of $100,000 a year and own $1,000,000 worth of property, which would be steadily paying itself off, at which time your income would double due to not having any mortgage payments.

If I could buy at those prices and get that kind of income I wouldn’t care if real estate never went up.

But we know it always does in the end, doesn’t it?

The only exception would be if the area were turning into a ghost town, for example a mining town when the mine closes down, if there were no other reason for the town to exist.

Multi unit - HELP! - Posted by TomK

Posted by TomK on July 09, 2002 at 17:00:57:

I am looking at a multi-family deal. The property consists of 1- 3 bedroom apt., 2- 1 bedroom apts, 1 - 3 bedroom house, and 2 storefronts. The property needs $30,000 in repairs. The total rent when fully occupied would be $2,400/mo (cheap rents in area). The expenses have been $8,000/yr (taxes, water, sewer, garbage, and insurance) for the last 2 years. What should I offer? They are asking $79,900! They are not firm on the price either. Is this a good deal? Any help would be greatly appreciated.

Re: Multi unit - HELP! - Posted by GL(ON)

Posted by GL(ON) on July 09, 2002 at 18:57:53:

Let’s look at it another way.

Suppose you pay full price and spend $30,000 fixing it up.

Then you have $110,000 in it (round figures).

If you borrow the whole $110,000 on a mortgage at 7% that is about $850 per month.

Now the income is $2400, take away $666 for expenses ($8000 divided by 12)

So $2400 - $666 = $1734. Take away $850 for the mortgage = $884 POSITIVE CASH FLOW every month.

Could you live with that?

That is being conservative. You can probably see ways of making it better.

Re: Multi unit - HELP! - Posted by GL(ON)

Posted by GL(ON) on July 09, 2002 at 18:39:28:

You could have $175,000 or so in it and it would still carry. Take off the $30,000 for repairs and anything under $145,000 puts it in positive cash flow territory.

If you paid full price plus the repairs you would have about $110,000 in it. ($80,000+ $30,000). If the net operating income is $20,800 that gives a capitalization rate of 18.9% on your money. Of course if you don’tpay cash but get financing your ROI will be higher than that, possibly multiples of that.

It shouldn’t be too hard to get over 100% cash on cash return.

Yes, it’s a deal if true.

You don’t say where it is or why it is so cheap. Is it in line with other properties in the area? Where is it, Buggtussle?

(Little humor there)

It looks like the kind of deal we are all looking for.

I’d still like to know where you can buy a house, AND 3 apartments AND 2 stores all for under $79,900?

But if that is what properties are going for you may get it even cheaper or get them to take back a mortgage. You never know until you make an offer.

Re: Multi unit - HELP! - Posted by TomK

Posted by TomK on July 09, 2002 at 19:49:39:

The numbers are real. However this is an estate sale, so it is under priced. The other buildings are selling for about $180,000. This property is located in a small town in Pennsylvania. I am also looking at a 6 unit for $115,000. Total rents are $1900. It is hard to get good rents here. But, the market is slowly improving.