Fourplex Expenses

3 Replies

Hey all,

I've found a Fourplex that seems to be in great shape, but I'd love your help estimating cash flow to make sure I understand what I'm getting myself into.

The building was built in the early 1980's. It seems like a fourplex surrounded by other (almost identical fourplexes) selling for about 50-60k more. It's not under contract yet. I'd get an inspector to come and check it out head to toe. It's in a pretty decent school area, lots of working class folk. There are a good mix of homes and apartments in the area, mall nearby, park nearby, etc etc. All the units are 2 bed/2 bath and currently occupied.

I'm going to use sort of worst possible numbers and see if this still makes sense.

The property is being sold for 155k. Let's assume I get it for that price. (I'll try to negotiate for the buyer to cover closing costs, which I estimate to be about 4k. I'd be happy to pay 'sticker price' in that case, but we'll see when it comes to negotiations.)

FHA financing for 155k = $5,250 down, I'm going to assume a 7% rate because why not! Taxes were about 4.5k last year. Let's assume an increase and put 5k.

Checking out rents, I'm pretty sure I could get $950 a mo. and be very competitive in the area. But again, let's be conservative, and put $850. Average median income for the area is about 50,000.

Revenue

----------

$850 mo x 4 units (but I'll be living in one) x 80% (vacancies, etc) = $2720

Expenses

-------

Mortgage payment ~ 1700 monthly @ 7% (assuming 5,000 annual taxes, 3,000 annually for insurance)

There is a $700 monthly maintenance fee, which covers the exterior part of the building, the grounds, and access gates.

500$ a mo. for repairs, future repairs, any other expenses.

= $2900

Again, this is an incredibly conservative estimate, and I still come pretty close to breaking even and *almost* living for free. 

Tear apart my numbers! What are your thoughts?

what are the current rents?

Why is it priced much less than others that are similar?

Need more info but at first glance not bad, if the rents are accurate.

I started in a three-decker in MA. Lived close to for 'free' by renting 2 units. Allowed me to build up the 'property management' experience that banks are looking for. It didn't cash flow until I moved out but living for 100/month is better than spending 1000/month..I saved the difference and started investing full time a couple years later.

If that particular fourplex is good..I don't know..but I think the concept is solid.

@Arlan Potter Yeah, I'll definitely check with the listing agent to see what the actual rents are and factor that in, instead. 

@Eric Bowlin  I grew up in Boston, I thought it'd be impossible to come close to breaking even there. Really cool that you almost did it.

Thanks for the advice, both.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you