Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Small multi-family

RedlineBrett

RedlineBrett

0
Registered
Joined
Oct 24, 2007
Messages
2,289
Looking to put an offer in on a small multi-family this week. 5 or 6 units.

Wondering if any members well versed in this product would care to chime in on the extra due-diligence for this type of property?

The one I like is a 1968 fourplex with two suites added *on top* in `83. has a sloped lot. New boiler and individually metered units for electricity. Casual talks with the on-site manager revealed that there were some pipes that froze this winter and caused some leaks and also that most of the bathrooms need work.

do I need a specialized engineering firm to look at something this small? Not talking a 20 unit complex but also not talking about a duplex either.

I`m getting residential financing on it... will I need environmental site reports and things like that?

What, if anything, would the seller expect to pay for in the due-diligence phase?

Thanks all!

BT
 
QUOTE (RedlineBrett @ Mar 16 2009, 09:08 AM) Looking to put an offer in on a small multi-family this week. 5 or 6 units.

Wondering if any members well versed in this product would care to chime in on the extra due-diligence for this type of property?

The one I like is a 1968 fourplex with two suites added *on top* in `83. has a sloped lot. New boiler and individually metered units for electricity. Casual talks with the on-site manager revealed that there were some pipes that froze this winter and caused some leaks and also that most of the bathrooms need work.

do I need a specialized engineering firm to look at something this small? Not talking a 20 unit complex but also not talking about a duplex either.

I`m getting residential financing on it... will I need environmental site reports and things like that?

What, if anything, would the seller expect to pay for in the due-diligence phase?

Thanks all!

BT

check:
a) is this a legal 6-plex ? if not, then financing may be only on 4 units ..
b) of course you need an engineering report
c) you need an environmental report most likely
d) you need a roof report if not part of b)
e) you need an appraisal

b) to e) is about $10,000 .. and it is usually paid by the buyer .. but of course you can always negotiate !

what are you paying ? what is the rent ? is there upside ?
 
Hi Thomas,

Thank you for your reply.

Property is a legal six plex.

My broker is telling me I don`t need an engineering report or an environmental report if my lender doesn`t ask for one for financing. What are your thoughts here?

What is in a formal engineering report?

My current thought is to bring in specialists for the roof and the boiler. Boiler is advertised as new last year and looks pretty good from what I could tell.

Will be paying somewhere between 900-960 depending on what comes back on the counter offer. Six plex has six three bedrooms of 950ft^2 and is in a AAA location full of development and an upcoming city-sponsored community/health + fitness center. Current rents of 825, 900, 850,975,1050,1050. Market rents are ~1150-1200/mo. Laundry is $1500/yr. All-in expenses of $24,500/yr (`08) including common heat, onsite management, taxes and insurance. Needs at least 30k in cosmetic updating.

Thanks again for your thoughts!


QUOTE (thomasbeyer2000 @ Mar 16 2009, 10:15 AM) check:
a) is this a legal 6-plex ? if not, then financing may be only on 4 units ..
b) of course you need an engineering report
c) you need an environmental report most likely
d) you need a roof report if not part of b)
e) you need an appraisal

b) to e) is about $10,000 .. and it is usually paid by the buyer .. but of course you can always negotiate !

what are you paying ? what is the rent ? is there upside ?
 
Hi, make sure your inspector is a Cahpi member (and preferably RHI - usually meaning certain experience level). expect to pay around $1000.
ask him in advance if he brings that humidity equipment to check the bathrooms mentioned (forgot the name). a professional inspector should use that in this case.
this should be enough. However, "most of the bathrooms need work" - this comment alone would probably result in me not purchasing as it may require a lot of work but if you have a deep pocket or connections with contractors in the area or knowledge in extensive renovations or into that type of investment, it might still be worth it.
I know you are doing your due diligence so if you are still considering it I`m guessing it has a lot of potential cash flow wise. fixing bathroom leakage can cost between $500-$5000+? and you can not always tell in advance because as some plumbers like to explains "we won`t know for sure until we open/break/see behind/inside the wall etc." Cheers.
 
Unless my math is wrong I do not see this deal adding up.
Your expenses do not list repairs, legal. evictions, etc. $24,000 seems low.
You rental income is $5675/ month on a $950,000 purchase.
Your mortgage costs will be $5500 - $6000/ month.

WHAT IS MISSING?
 
Expense list is broken down as follows:

utilities elec 3327
utilities gas 5034
insurance 2094
management 2100
2008 taxes 4978
office supplies 765
Cleaning 954
garbage collection 1416
maintenance 2947
license and inspection 340
cable tv 540

Total = 24495

Rental income is 69,565/yr, at present. Market rents are somewhere between $82,000 and $86,000. Vacancies are really low.

An "intangible" would be the value of the land. Same size lot directly across the street sold for 850k late last year with a shack on it... basically land value only, although that lot will have slightly better views. The location is really good - lots of redevelopment in the area and the "highest and best use" of the land is likely a small trendy townhouse complex. The city is also going to be pumping a lot of $$ into the improvement of the area by renovating an old historical school on the other side of this building (it`s on a corner lot).

Tough to put a price tag on those other elements but they are definitely implied in the sellers asking price.

QUOTE (invst4profit @ Mar 17 2009, 07:40 AM) Unless my math is wrong I do not see this deal adding up.
Your expenses do not list repairs, legal. evictions, etc. $24,000 seems low.
You rental income is $5675/ month on a $950,000 purchase.
Your mortgage costs will be $5500 - $6000/ month.

WHAT IS MISSING?
 
Your maintenance costs appear to be almost non existent. You mentioned the boiler was replaced last year. Something isn`t right.
I also do not see eviction and vacancy expenses.
Value aside where do you see the cash flow?
 
Maintenance is at $3000/year... not good enough? Keep in mind the 20k in repairs we are budgeting for bathrooms, balconies and some carpet, plus an external paint job.

We don`t add eviction in as a separate cost. That would be considered "management".

I actually think we can trim those expenses quite a bit. We self-manage all our units so the office supplies, management and cable would come off.

With 15% down, 4.39% over 35 years I have it cashflowing ~1700/mo when fully rented.

QUOTE (invst4profit @ Mar 17 2009, 09:25 AM) Your maintenance costs appear to be almost non existent. You mentioned the boiler was replaced last year. Something isn`t right.
I also do not see eviction and vacancy expenses.
Value aside where do you see the cash flow?
 
Issue # 1. your calculation of 1700 is based on market rents (>80K) not actual rents at present (70K). using present rents there is no positive cash flow.
issue #2. Greg is right, my guesstimate is that your expenses are expected to be closer to 35K than 25K.
good luck.
 
Are you placing any value on your 15% down payment (pay yourself first) or are you simply writing it off as free money. I see a problem in your calculations on positive cash flow if this money is not assessed a value in regards to "lost opportunity". It`s a lot of money to ignore.
The deal seems over priced based on the numbers going in.
 
Not that I asked for an evaluation of the #s in my deal, but seems that`s what I`m getting lol...

Won`t ever find any listing, of any property in Calgary anyway that has full market rents and is priced to be a steal and requires no work. The value is in turning the building around.

It does break even at market rents. The expenses they have appear to be high when compared to the rest of our 20 unit portfolio here in Calgary and how we run OUR shop.

Without any property in Calgary and having never seen the building I find it difficult to give much credence to your 35k vs 25k estimate.

Also, this isn`t a Queen`s u ghetto apartment building we`re talking about... I`ve lived in those... it`s in one of the premier areas in Calgary. It was long priced for condominumization and the numbers are coming down now to flirt with acceptability on an income evaluation. Is it the best #s deal I`ve ever done, no... but buildings in this area simply don`t come up very often which is why it`s on my radar.

QUOTE (investmart @ Mar 17 2009, 07:18 PM) Issue # 1. your calculation of 1700 is based on market rents (>80K) not actual rents at present (70K). using present rents there is no positive cash flow.
issue #2. Greg is right, my guesstimate is that your expenses are expected to be closer to 35K than 25K.
good luck.
 
The opportunity cost of the 15% down is certainly a factor. We are still weighing what we can do with that vs proceeding with this property. Definitely not lost on me.

It might indeed be too much to pay for the property. The posts in this thread are certainly making me think twice about it. However I have a tendency to do deals that are 85-90% of what would be a perfect deal in the interest of doing more volume. Get it in the system, move on to the next one and grow faster... Perhaps a little more time and space is required before pulling the trigger on this one... or maybe I`ll just offer way less... lol.

Anyways thank you both for your input.

QUOTE (invst4profit @ Mar 18 2009, 05:53 AM) Are you placing any value on your 15% down payment (pay yourself first) or are you simply writing it of free money. I see a problem in your calculations on positive cash flow if this money is not assessed a value in regards to "lost opportunity". It`s a lot of money to ignore.
The deal seems over priced based on the numbers going in.
 
Every investor has there own approach and priorities.

Mine has never been from the perspective of growing wealth only immediate income. As a result my evaluations are slanted in that direction.
 
I have always been unimpressed with the spread between projected and actual costs to run those boilers. I personally would add a hedge in there too. Just something to keep in mind.

If the numbers are calling the deal to be good, and you are convinced you have done adequate DD, then dont get pulled off the course, pull the trigger. This is a small building to get some additional experience on.

Good luck!
 
You must log in or register to reply here.
Back
Top Bottom