Owner Occupied Multi Family House Purchase
I have the opportunity to purchase this 4 family house in a decent, working class neighborhood. Besides the fact that I need a place to live, I believe this would be a good investment. Please note that I would be living in one of the apartments. Any thoughts??
I could purchase this multi-family house for $261,000 ($290,000 sale price with seller giving $29,000 at closing for down payment), market value is probably around $300,000 - $320,000 based on comps. Its a good start.
Rents are:
$550 for the 1 bedroom (a little low)
$650 for the 2 bedroom (a little low)
$800 for the 3 Bedroom (not currently) occupied) (a little low)
I would be living in the 4th apartment, a 2 bedroom.
There are 3 -1 car garages on the property which are renting for $150
Taxes are about $2500, Insurance would be about $2000, utilities would be $2500 for oil heat and about $1600 for water/sewer - annually. I have a $50 per month advertising amount built in to my cash flow numbers and I will be managing it myself. The advertising won't be that much as its a pretty high market for rentals...
The house is in pretty good shape, cosmetically, it could use some updated painting in the apartment that I am going to occupy, but that's about it...
My mortgage for this property would be $1,180, based on a 4% ARM guaranteed for 5 years. I have spoken with a mortgage broker that said it shouldn't be a problem getting closer to 3% but I am at 4% just to be safe... After the 5 years - I'll probably refinance.
Anyway after all this I have a cash flow positive of about $118...
Does anybody have any input on this deal? It shoulds good to me, but am I doing anything wrong?
Any questions/comments/concerns/ would be greatly appreciated!
Thank you!
[addsig]
Sounds like you are working into a pretty reasonable deal, compared to buying a single family home and paying for it out of pocket. This was the first move I made in real estate as well.
I think there may be some softness in your numbers, but you look to be in the ballpark.
First, rents: Your highest rent is on the unit that is not occupied, so how confident are you in that number? Are you figuring in occasional vacancies?
Second, repairs and maintenance: I don't see any money set aside for this. Things will break. You want to make sure you're planning for those costs.
$2000 for insurance seems high. Have you shopped around?
Hopefully you're keeping renters and your advertising cost is really not much more than $100/year. That gives you more for repairs.
Will you be doing work on this property yourself or hiring it out (or some of both)? Do you want to be a landlord? These are big questions that you've hopefully answered for yourself.
My first rule of real estate is "everything is more expensive than you expect". I'd guess your going to have months where you make money and months where you lose, probably giving a somewhat higher likelihood to losing months. If you keep it rented and nothing major breaks, maybe you lose $1000 a year. That's not bad, considering you're in one of the units.
Oh - if it's worth $300K, why is the seller giving you a $40K discount? I don't need to know the answer, but hopefully you do.
Bill