Please Help me Analyze this FourPlex deal in Denver, Colorado
Hi Guys,
I need some assistance from you about what would be a good offer price on this fourplex:
Background
I have an opportunity to purchase a fourplex in the Lowry/Stapleton/Fitzsimmons Medical Complex area in Denver. If you are not familiar with Denver, this location will not mean anything to you. If you are familiar with Denver, you will know that this fourplex is right in the center of the "path of progress." Hundreds of millions of dollars has poured into surrounding area - and more to come. The fourplex is located well, and the neighborhood is poised for further improvement. It has already improved dramatically over the past year.
This property is not listed. It has been brought to me by a friend. And the seller is somewhat motivated. Seller is not in any distress. He owns hundreds of apartments and this one is just too small for him and hence it is not getting the attention it deserves. I do have an income stream as a private lender, and sometimes similar offers are put in front of me. I have not been interested since I had a 9-5 job in addition to my private lending activities. I recently retired, so I am now more open to real estate investment opportunities as well -- not just private lending.
Property details:
Presently gross income = $2,300pm ($27,300 pa). This is low for the area. Perhaps because the apartments need updating.
Note: All tenants are on month to month leases. Owner has wanted to convert the fourplex into condominiums but is too busy to get around to it. I feel that with a $5,000 (total) cosmetic improvement I could justify a rent increase that would gross $3,000pm ($36,000pa). Later, I could convert them to condominiums.
Asking price $280,000-$300,000.
Where I need Your Advise:
Can you suggest what a good offer price would be? With present gross rent of $2,300pm and using the 50% rule, 4.5% interest, $280,000 purchase price, 25% down, this investment provides negligible cashflow of $86. After cosmetic improvements, and increasing gross rent to $3000 pm, cashflow becomes more interesting at $436 pm.
Some additional facts.
As a Private Lender I average 12%pm (1% a month). How do I factor the opportunity cost of using $70,000 as a down payment versus lending the $70,000 and earning $700pm on it?
How do I measure the impact of depreciation write offs? While this cannot be the primary reason for investing in rental real estate, I could use some of the depreciation write offs. A property purchased for, say, $280,000 would generate $10,181 in depreciation write offs and thus a $2,545 income tax savings (assuming a 25% tax bracket). Eventually, I would like to have more than one rental so that I can generate more depreciation write offs. The goal is to shelter income from various sources (including Private Lending) and convert my Traditional IRAs to Roth IRAs without incurring any income tax.
Guys, I would really appreciate some guidance. If you need any more information, I will provide it if I have it. Since this is my first rental, I would like some guidelines on how to make a fair offer price. If the seller will not accept less than $280,000, is it worth the trouble? What are the other negotiation points where I could get some concessions -- if he will not budge on selling price?
Thanks,
Alfredv