I Think I'm Ready, What Do You Think?
Been oing research/reading and learning as much as I can over the last year and I'm ready to jump in. I have been looking a alot of properties in my area an prices are so high on most positive cash flow isn't possible. Averages around here are $350000-$400000 for a 3 unit, most with two bedroom units. Anyway after looking at serveral props I ran across a 3 unit this week. Asking price is $310000, rents are $1100, $850, and $750, expenses are $7982. The unit renting previously for $1100 is currently vacant, the previous tenant trashed it. Flooring is down to the sub floor in entire apt, no appliances, the whole apt needs fresh paint, and the bathroom could use a remodle. I own a small landscaping company so I am in my slow time and this project is perfect for me. The current owner is in the process of renovating the trashed unit but will take an offer "as is" or $3100000 when he finishes. At the asking price I would have a positive cash flow of around $200 per month. Anything I am over looking?
jesa,
$200 cash flow on a 3 family ??? These numbers are WAY too thin for me. My advise to you would be - keep looking. Sometimes you want that first deal so bad you just make it happen, for all the wrong reasons. Keep searching. There is a deal out there but I dont think this one is it. (actually i was just thinking.....whats the property worth rented and fixed up???)
My numbers were based on the asking price that has an 8% cap rate, my offer will be in the 10% range minus the improvments that need to be made. What should I be looking at for a cash flow, should I look at a per unit basis or an overall building? Thanks for the response!
To determine if this this is a good deal for you; please ponder the following scenario.
You but at 290 (pre rehab) do all of the rehab work yourself and eak out $5,000 on CC for materials and supplies. You get your spiffy new appartment rented for $1100 (after it sits vacant for 2 months), then the tenant in the $750 apartment moves out and trashes their apartment. Now you get to endure 2-3 months of a vacancy and te expense of the rehab to get it rented.
I guess my point is that to get into a project like this you will want to be ABSOLUTELY sure you have adequate reserves to cover your expenses for a few months - and hope that is all you need.
You should check current available rentals in your market to try to determine how hard it may be to find new tenants should yours move (i find that in places I buy the current tenants nearly always move wihtin 18 months)
By the way, if you are planning on living in one of the units that will definately be a positive influence on your first investment!
Both tenants in the other units are very happy tenants and consier the apts there homes and keep them up very well. The rental market here is crazy, I was talking with an investor in the area and he gets 30-40 calls in the 1st 3 days for any ad he places, he owns 12 units and a single family and never has a problem getting them filled. I have the cash to cover the rents if needed. Thanks for your repsonses, you guys are getting me thinking!!!! :-D