Help Analyzing a 4plex

14 Replies

I am looking to buy this 4 plex. Am i missing anything with my numbers? How does everyone feel about the offer price? There are no comps in the area for a 4plex. 

Asking price: $159,900

Offer price:$130,000 w/ seller holding note for 20%

Gross Rent: $2200

Cap X: 220

Maintenance: 220

Vacancy: 220

PM: 220

Tax and Ins: 150

Debt Service: about $700/mo based on 5% interest on $130,000

My intent would be to offer $130,000 and have seller hold a loan for 20% of that. I would get 80% loan(from someplace yet to be determined.)

Cashflow: $470

The 4 units are rented. I have no due diligence yet on any rehab costs. I know that it is at least rentable since all 4 units are rented. The outside seems fine, with no noticable repairs.  

Any advice is appreciated. 

Any advice on this deal?

why do you want seller to hold a $26k loan. Arent you better off getting a fha loan and have seller credit you back closing costs.Or ask the seller for a 90% loan and you find the other 10%

I agree that the #s seem attractive and meet $100/door but why do you need seller to hold 20% note....? is cash an issue....have you thought about FHA loan?

The numbers look pretty good, especially considering that there's no vacancy. If it's in a good area that has appreciation potential then that's even better. I'd try and find out some info on the actual financials like utilities/metering in particular and see if that's currently baked into the rent they're charging or if the owner has to pay it. The cashflow is a bit weaker than I would ideally like to see for a 4plex, but considering how cheap it is, it's still decent, especially if you can do some value-add to increase the rents after the tenants move out.

Lots of thoughts on this (and I don't mean to offend, just offer my insight): 

Where is the "other" 80% coming from?  You have no skin in the game.  You are borrowing money from the seller to show the bank you have a down payment, and you are borrowing money from the bank to pay the seller.  This is not conventional nor creative. 
Your property taxes and insurance allocation looks underestimated.  I would use your local tax estimator or tax records to review the actual tax figure/ year AND call your insurance company for an actual quote on insurance for the year. 

I plugged all your given numbers (though they should be verified) into the BP buy and hold calculator, and that 4plex property will cash flow $94.57/ month divided by 4: so each unit should yield you $23.64/ month in cash flow. 
I assumed you'd be paying back the seller carried 20% ($26,000) at 5% for 5 years with a payment of $253/ month.   
Have you looked into a FHA loan on primary occupancy dwelling (duplex, triplex, quadplex). But, don't forget about your reserves, repairs initially to get rent ready the other units.

My interpretation is this deal is a poor choice unless there are other variables not mentioned.  

Here is the BP calculations for this buy and hold

Here is the repayment mortgage to the seller for the $26,000 (20% carried by seller)
I misspoke earlier as I carried that $26,000 loan from the seller for 30 years instead of 5 years of previous calculation.  Using 5 year repayment to seller, your monthly payment would be $512 for the $26,000, PLUS the primary P/I to a bank which is $822/ month.  With this correction, you are cashing flowing  negative $165/ month (loosing $41.25/ door).

tough to cash flow $100% financed deals as @Aaron Thivierge pointed out

Thnx for the input:

@Steven Picker

 @Bryan C.

The seller financing is so I do not have to put 20% down. I would like advice on the fha financing but do not know if I qualify since I already have a primary residence and 6 other units. If I am mistaking let me know,and referalls for a mortgage person are good too. 

@Vincent Crane

There may be some value add internally, but that is yet to be determined. I could definately raise the rent though once the lease runs out due to demand in the area. 

@Aaron Thivierge

Where my numbers differ is I was hoping for the seller financing to be 30 years amortized, but balloon in 2-5 years. Just to give me some time to value add and refinance. Thats where I got the $470 cashflow. The taxes and insurance are accurate estimates, taxes from the state records, and insurance from similar properties i have sent to State Farm. For reserves, you add reserves too? in addition to cap x, and maintenance?  

Trust me the input is very appreciated. 

That last link I noticed defaults to a different number. In essence, that last link was to display $26,000 repaid at 5% over 5 years is $512/ month. 

@Aaron Thivierge

 Im not looking to have the seller provide a 5 year loan. Im looking for 30 years, with a balloon payment in a couple years. So the $130,000 (if both loans are at 5%) would be $697

@Devin Scott , FHA loan is for someone living in the property as a primary residence. So you would need to live in 1 of the units. 3.5% down payment though is convenient.

@Bryan C.

Yea FHA wouldnt work then. I just bought a primary in December, it wouldnt be realistic that I now am moving in a 4 unit.. So i havta scratch FHA off list haha

@Devin Scott , I've got to disagree with several of the other posters. Your numbers indicate a 10% cap rate, which is usually easy to cashflow at 100% financing. As you and others have pointed out, FHA is not really an option here.

I'd rather see the seller carry the first 80%, but I'm sure you've already had that discussion. If the seller will carry for 60 months at 5% amortized for 30 years, that's reasonable secondary financing.

My biggest problem with this deal is the smallness of it. One vacancy on a quad represents a 25% hit on your GOI, so be sure to have plenty of reserves. 

If the numbers vet and the existing income is genuine, I'd be making an offer. How's your credit? In fact, if there's equity in your other properties, you may be able to cross-collateralize to help qualify. Just make damned sure this deal is a deal. I'd look especially close at expenses. You can kill your cashflow quickly by underestimating or trusting underreported expenses. You can find out for sure during the inspection period.

So, what is the local market like? Crime, unemployment, quality of the neighborhood, rent comps, etc. What is your exit strategy? Is this project close to where you live, work and play? I mean within an hour commute from home so that you can personally put eyes on it regularly.

It sounds like there is potential here. If you agree, make and offer. Get it under contract (with standard "weasle" clauses, of course) and come back here for the next step. Good find!

@Tom Mole

Thank you Sir. It would be great if the seller could hold 80%. I noticed from the tax records that they just purchased it a few years ago and they had at least partial financing. So they may not be able to finance 80% even if they wanted to. That is something I need to find out for sure though. The local market is not bad, Id say a B to C- area and it varies street to street. My exit strategy would be to add value, raise rent and refinance. I live about 45 minutes away and own another unit within 10 minutes from it.  I put the offer in so we will see. I gave myself a 30 day feasibility study to do my due diligence. 

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