4 plex offer advice

[Kelli Van Doren]

Hi,

I am considering an offer on a 4 plex that is a short sale. Owner has 230,000 in debt. List price is 175,000. There is another offer already so I am to make my highest and best offer. Rent is 550/unit. It is in a good neighborhood.

I used J Scott's Basic Rental Analysis Worksheet and got a cash ROI of 13.88% with an offer of 175,000. Included maintenance, insurance, taxes, lawn care, property management, admin fee, 10% vacancy rate.

What do you recommend for an offer price? The roof probably needs replaced...it is a mansard roof.

Thanks,

Kelli

[Jon Holdman]

At $175K you're paying $43,750 for $550 in rent. And you're paying for property management, so you bear the full brunt of the 50% rule. I get a bit under 11% cash on cash with 25% down and 5%, 30 year financing:

Rent: $2200
NOI: $1100
Price: $175,000
Down: $43,750 (25%)
Loan: $131,250
Payment: $704.58
Monthly Cash flow: $395.42
Annual Cash flow: $4,745.06
Cash on cash 10.8%

Doesn't seem like a great deal to me, but its not horrible, either. You could improve your cash flow by self managing. Perhaps you're using different assumptions, but don't underestimate expenses (and vacancy and capital) to make the deal look better.

I have a lot of family in you area, Jeff City, Rolla and that area and looked quite a bit at Columbia a few years ago. I didn't find any deals that were very good. This actually looks fairly good for Columbia. If this were a single unit, it would be much better because you would only deal with one tenant. With four tenants, it looks like a lot of work for a pretty low return.

You might look at Kansas City and some of the not-so-good areas. You can buy that much rent for considerable better. You're probably stuck paying for a PM, but at least you close enough to get there in a few hours if you need to.