Is This A Good Deal? What's Your Opinion???
Last night when I was fixing up my first property I recently purchased as an investor, the neighbor came over to visit. My business partner asked him if he was the one that owned the apartments two lots down- he said yes and wondered if we were interested in buying them.
He started throwing out some numbers and said he can back everything up with documentation for the last 12 years. In that time, he has only lost out on 1 months rent of one apartment.
Here are the details:
*2- 4 plx units side by side
*condition looks great, one unit less than 10 years old. The other unit had a new roof in the last 2 years.
*Yearly insurance $1900
*Yearly taxes $7,000
*dollar amount brought in per month= $2615
*money paid in utilties apprx $250 per month (he only pays partial utilities on 2 of the apartments)
*asking price $250,000
Maybe my details are too vague, but I don't know how to get a FMV of this type of property- we really don't have too many multiplex units in my town and the ones we have don't sell too often.
Any advice from the gurus out there??
Thanks.
Kim
If he has 12 years of documentation, look through it. Look at what type of maintenance has been done on the property, and more importantly what hasn't.
Try and figure out your maintenance costs for any big ticket items and use that in your negotiations on the price. Remember $250,000 is the top price, bring him down from there.
When you look at his maintenance figures, and the PITI for your financing, you want to make sure that having 3 of the 4 units occupied will cover all of your bills plus a little more. That will give you real nice cash flow whenever it's fully rented.
Kind of simplistic, but a decent guideline to follow if comps are scarce.
I agree look at the maintenance end of it. You will need to find out what his expenses are, and then make a decision. A lot of people hate the 1% rule, but to start out take your monthly Net, and add a couple zeroes. That should be the starting price. I usually figure in 30% for expenses. Based on that the buy price is a little high, but if the rents could be raised and the seller is willing to hold paper, it may be a good deal. Make sure there isnt any defferred maintenance needed, like a roof, or new plumbing etc. If there is just have him take it off the buy price or take it as the first couple of payments off of a second loan he may give you.
The good thing is that he approached you, so he is eager to sell. I would ask for a lower price and buy it, based on what you have said, and his lack of vacancies.
Good Luck,
Kyle
So when I started out in this business my mentor explained it like this. Any building anywhere anytime is worth 10 times its net operating income 9 times is a good deal 8 times is a very good deal When the price is 7 times the net you come get me.
That said it strikes me this is a prime condo conversion opportunity.