Landlording & Rental Properties

How to Buy a Profitable 4-Plex Deal: An Investor’s Step-by-Step Case Study

Expertise: Mortgages & Creative Financing, Business Management, Landlording & Rental Properties, Commercial Real Estate, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Personal Development
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So last week, I talked about how we purchased a package of 97 houses all at once. Let me follow that up by letting you know how we purchased a single 4-plex. Ok, not nearly as exciting, but I think this case study is a lot more practical for a newbie investor. (Pro tip: If you are just getting started, do not attempt to buy a package of 97 houses all at once.)

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This particular deal was one of the first properties we bought after we arrived in Kansas City back in 2011. I had just been here three or four months, when I came across this 4-plex in Grandview—a working class suburb of Kansas City. It was vacant, but listed for only $55,900. At the time, I didn’t know much of anything about Grandview. So that is where my investigation began.

Evaluating the Area

It wasn’t long ago that Grandview was considered a morbid place to invest. Indeed, it found itself at spot number 8 on Forbes list of “America’s 10 Fastest Dying Towns.” As it noted of Grandview, “With few buyers, and no one moving in, home prices have dropped to $78,000 at the median level, off from $122,000 in 2003.”

But things had changed.

First came IHOP (not the pancake place, but the International House of Prayer). The controversial megachurch had planted its roots in Grandview and revitalized the city. Then came the announcement of two massive developments just south of town: a new Honeywell plant slated at $500 million and the similarly priced Centerpoint-KCS Intermodal Center. Both were going to bring in thousands of jobs, along with many more support jobs.

Grandview was becoming revitalized.

That being said, this property wasn’t in a particularly good part of Grandview. It was old housing built quickly and cheaply to serve as military housing for the now defunct Richard-Gebaur Air Force Base. But the area still had pretty decent occupancy, and Grandview has a relatively low (or at least not high) crime rate.

Evaluating the Property

The property was not in bad shape, but each of the units was very small. What was good about it was that it had central air, and all of the furnaces and A/C compressors were in good shape (a rare sight for vacant multifamily). In addition, there were no structural or electrical problems, and the roof was fine.

Related: How to Buy a Small MultiFamily Property: A Step by Step Case Study

But what was obvious is that the property looked awful from the outside. It had these huge, ugly aluminum windows in front and plain light blue vinyl siding that looked about as tacky as could be. So I decided to upgrade the windows to vinyl (and there weren’t very many, so this was a small expense), build up the bottom and put some black trim underneath, and add some window shutters for exterior appeal.

Here’s the before and after pictures:

Before After

The interiors needed carpet and paint and countertops, but not much else. The only other notable problem was the way the kitchen was laid out, which made it so you had to squeeze past the refrigerator to get by. This made the ktichen look tiny. But that was easily fixed by just replacing the regular-sized refrigerators with apartment-sized refrigerators. These were one-bedroom apartments, after all.

So we put all of this together and came up with a rehab budget of about $15,000.

This property was owned by a small bank and was listed on the MLS. But luckily, it appeared there was a mistake made on the listing, as there was a “special tax” listed for the same amount as the property taxes. This may have scared a few potential buyers off.

But it sounded very strange to me and my agent, so we looked into it and were able to verify this was a typo. Listing mistakes are not uncommon, so keep your eyes out for them. Anyway, we offered $42,000 and were able to come to terms at $44,000.

Then we began our due diligence (something you should never skimp on). During this, we scoped the sewer line and found that it was not just broken, but actually broken under the street (which adds a lot to replacing a sewer line).

We got a bid that came in at $9800. So we re-traded and asked the bank to take that off the price. They came down $7,000, and we agreed to meet them at $35,000. That’s $8,750/door if anyone’s counting!

Once we purchased it, I looked around for another contractor and found one willing to do the project for $6,800. So we replaced it and then fixed up the rest of the property.

By the time we finished, we were all into the property for about $57,000, or less than $15,000/door.

It Ain’t Over Until You Manage It

We’re buy and hold investors, so our next step was to rent it out. Now, this actually didn’t go very well for the first two years we owned it. During that time, while we had good equity in the property (we had it appraised at $90,000), we actually lost money on it.

The problem was that it didn’t rent for very much. At first, each unit only rented for $395/month, although the tenant paid all of the utilities, including water. (We have since increased it to $450.) Properties with very low rents are hard to cash flow generally because the fixed costs and maintenance will eat up your cash flow. Indeed, I would be very much hesitant to own any apartment unit that rented for $400 or less or any house that rented for less than $600 a month.

Related: 6 Reasons to LOVE Multifamily Investments Over Single Family Homes

What turned this around was diligent screening. Bad turnovers were killing our margin. It takes a long time to make up for new carpet, paint, and all the other little things that go into a turnover when you are only making $395 a month and have a $395 deposit (or even $450). So you need tenants who won’t trash your unit. Early on, we were too desperate to fill the place up so we let in poorer quality tenants.

But it’s better for a property to be vacant than filled with a bad tenant. Once we got more patient and tougher on screening, the property turned around, and today it cash flows very well.

So while this may not be the most exciting deal in the world, deals like it are quite common. And enough of these kinds can get you far on the road to financial freedom.

Investors: Have any questions about this deal? Have you ever purchased a multifamily property?

Let’s talk in the comments section below!

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.

    Eric Robinson Rental Property Investor from Oklahoma City, OK
    Replied almost 4 years ago
    Hi Andrew, thanks for this informative article. As a new investor intending on starting with a small multifamily property, this kind of info is especially valuable. I am on the lookout for something similar – a property that needs mostly cosmetic work that can cashflow well. However, in my case, it would have to be a place/area I wouldn’t mind living in since I’ll be house-hacking with FHA or VA. Great job on the rehab – did you do any of the work yourself?
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied almost 4 years ago
    No, I wish I was more handy, but I wouldn’t have the time to do these projects. We use a combination of employees, subcontractors and general contractors for our work.
    Casey Murray Real Estate Agent from San Diego, CA
    Replied almost 4 years ago
    Great job, Andrew. If further problems were found with the property (roof, electric, etc.), was your plan to just lower your asking price with the bank based on the estimate of the problem?
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied almost 4 years ago
    Pretty much anything we find during due diligence that is noteworthy we would use to retrade, if that is possible. Some, like Fannie and HUD, won’t allow it. In those cases, you just have to decide whether to back out or if the deal is still worth it.
    Silas Flewelling Claims Auditor from Bowdoin, Maine
    Replied almost 4 years ago
    Hi Andrew, Thanks so much for sharing your story. It was much more relevant to me than your 97-home package purchase! I am still in the education phase of my real estate investing, but I intend to enter the market by house-hacking in a multi-family. A recurring theme that keeps popping up in the articles I’ve read has to do with being purposeful about choosing quality tenants, as you mentioned above. I think that the importance of this practice will be magnified by the fact that I intend to live in the same building, so I am essentially choosing the neighbors that I will be elbow-to-elbow with until my situation changes. I appreciate the before and after photos of your renovations!
    Donovan Castaneda from Kansas City, Missouri
    Replied almost 4 years ago
    Great Reid I look forward to your next posting !!
    Jeff T. Rental Property Investor from Culver City, CA
    Replied almost 4 years ago
    Nice post Andrew. Nice facelift on the exterior, too. Amazing what you can do with a little paint and trim. I have a triplex I’m about to paint pretty much the same color scheme. Do you happen to know what color the gray is? I’ve been trying to pick a good gray that’s not too dark.
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied almost 4 years ago
    The shade is a little deceiving in that picture, it’s actually a light blue, which is not my favorite. Unfortunately, I don’t have a good recommendation as far as grey’s go.
    Jeff T. Rental Property Investor from Culver City, CA
    Replied almost 4 years ago
    Wow, it does look gray, but then paint colors are tricky. They can look totally different depending on the lighting and the surroundings. Thanks for the response. I do like the changes you made and it looks much better.
    Kara Haney Investor from new york, nj
    Replied almost 4 years ago
    very good design sense – the changes are small but the effect large – good points about setting minimum rental goals vs turnover costs – it doesnt matter what neighborhood you are in – the cost of sheetrock, paint and tile is more or less the same!
    James Green Wholesaler from Waldorf, Maryland
    Replied almost 4 years ago
    @ANDREW SYRIOS that place looks NICE!! It looks like you put in parking, is that an added fee to the occupants?
    Tristan Cortez Rental Property Investor from San Antonio, TX
    Replied almost 4 years ago
    Awesome story! The property looks excellent and very well done! Good job and thanks for sharing!
    Andrew LeBlanc Investor from Ottawa, Ontario
    Replied almost 4 years ago
    Great article. Hoping to invest in a triplex or 4-plex next, and as a newbie investor any good information ahead of time is invaluable.
    Johari Hughes Real Estate Investor from Austin, TX
    Replied about 3 years ago
    This is a late comment here. But, just wanted to let you know I really appreciate the insight here. I like these simple boring properties, where thr owner learns or works with tremendous effort to refurbish and rehab a property to its full potential! Thank you again, no matter how late.
    Robert Stephan Investor from Chandler, Arizona
    Replied over 1 year ago
    To get an Idea of cost for the property. what were to expenses and mortgage for that first two years? trying to make a visual to see your process and how you improved your margin.