I'm looking to do my first house hack with no previous landlord or investment experience. I currently have the opportunity to buy a fourplex from another investor. I'm trying to discern if I should be afraid of this property or not. Or, if a somewhat unorthodox fourplex is a good idea for my first investment. Below is a brief description of this property in question.
The house isn't currently on the market, but he's directly given me the opportunity to buy it. It started out as a large single family home and has been converted to a fourplex. Each unit is one bedroom, one bath. The units are in typical rental condition (Maybe slightly rougher). The walls have layers of paint, carpet was dirty, and since the house is a little older the floor has settled and warped a bit. Think typical old floor that isn't perfectly level in all places. The investor has recently replaced the roof, siding, and windows. It currently has an older deck on the back that acts as a fire escape that would need attention relatively soon. The house only has one furnace and no central air. The controls for the furnace are located in one unit and are locked at a generic setting to suit all tenants. The tenants currently provide there own window AC units. It's in a nice safe area that I would be thrilled to live in.
Now I'll go over some of the financials.
Price of the property: $120,000
FHA loan payment: $1000 (Rough estimate including loan, insurance, PMI, property taxes)
Current rent per unit: $550, 550, 600, 600. (With some improvement rent could maybe go higher)
Basic utilities are covered by the landlord (electric and gas). Rough estimation: $200 - 450
Gross property income: $1700 (assuming no income from a fourth unit because I would be living there)
Payments and utilities: $-1450 (at max)
Cash flow: $=250 (Give or take depending on utility cost, time of year, vacancy etc...)
As a new investor and landlord, should I be afraid of this property and the somewhat unorthodox nature of a single family / fourplex conversion house? Also, the current investor has owned this property for 15 years. So that seems like a good sign to me. I would think that if it was a bad deal or a negative cash flowing property, he would have gotten rid of it a long time ago. Is this a fair assumption or am I being to optimistic?
I would not do this deal unless you have income to kick in every month to cover costs. You will not have any positive cash flow due to expenses. In addition I would strongly advise against investing in any multi unit building that does not have separate meters for all utilities. Never have any services in a landlords name.
That is a deal killer for me as a investor.
Is there something I am missing in my rough estimates? Why woudn't I have a small amount of cashflow in this property? Also, the single furnace is what makes me question this property as well. What can happen if the services are in the landlords name?
When services are in landlords name vindictive tenants leave all their windows open all winter, heat the unit with their stove and leave taps running 24/7.
Expenses will likley run 50% or more with utilities in your name. That is 50% of $2300. That does not leave enough to produce positive cash flow when you occupy one unit.
What is the zoning on it R1 or 4 plex by tax records?
Suggest a full inspection, foundation, termite as well as roof.
Any major issues like zoning, foundation etc, is a deal break.
What is the unemployment rate there? If it a 19 century Victorian in down town or real old building in Columbus with deferred maintenance I start looking at newer units. Downtown Louisville used to have many of these old homes converted to 3-5 units that were cash flow. I got a newer SFH in a B class neighborhood sold in a few months and came out OK. (Middletown, KY).
Originally posted by @Matt P. :
@Jonathan Pendleton I agree with Thomas. Keep looking for a better deal. I also never go for properties that aren't separately metered for each unit unless the numbers make sense for me to come in and have them separately metered before I start leasing things up.
When you say "seperately metered" do you mean installing furnaces for all four units? Or is there some other way to meter them? Sorry if this is a dumb question I'm just trying to absorb everything I can.
@Jonathan Pendleton Each unit needs it's own source/meter for electric/water/gas. Generally speaking with 4 one bedrooms like you have here the play would probably be to go with baseboard electric heat. Get each unit it's own water meter and electric meter. Then you'd need 4 hot water tanks and enough heaters to outfit your building. You will need to involve tradesmen to run the electric and set up the panels and water lines so it could get spendy so you'd have to run the numbers locally to figure out if it's worth it. People might come in with more specifics here to help you out but I have looked into it on a few places and it was tough to make it work numbers wise. Good luck.
Hi - I love Columbus. Great place to invest, especially for rentals as I've heard there is a huge shortage in rentals given the demand. I wouldn't be scared of a 4plex for your first house hack. I house hacked a 4plex for 3 years and it was great. Your property does violate 2 of my criteria though; purpose built and separately metered. Others have already commented on the meters, so I'll add my thoughts about purpose built. When you've got tenants in a property that wasn't built for multiple units, you'll generally have many more problems with noise transfer, causing you to have more frequent turns.
It still might be a great deal for you. Just because others who are commenting have made different choices doesn't mean that its not the right deal for you. Part of what's hard when you're starting out is deciding whose opinion to listen to. Feel free to PM me if you have further questions.