"The Mansion" Quad-plex Deal

6 Replies

Hey friends,

My husband and I have a SFH rental that has been cranking for us for 2 years now and we love it. Looking to step-up by purchasing a quad-plex and found a property we love. The property is certainly unique and my husband has some misgivings due to its age and complex construction. Care to give your thoughts?

Construction: Stucco.  Roof: Clay tile.  Year built:  Approx. 1870.  Heat:  Boiler, owner-payed.  Immediate repairs needed: Bathroom re-mod (new tub in one unit), several broken windows.

Income: $3000/month.  

Vacancy rate factored @ 5% (although the previous owner never had a vacancy longer than two months in 4 years of ownership.)

After expenses, including a $400/month cap-ex, water and heat expenses, taxes, insurance, debt service, etc. we expect to net just over $12,000 per year. This is a nearly 25% ROI for us (not including debt paydown.) Sounds great, right? Now for the catch:

We are under contract on this property, have an appraisal in-hand, and are ready to close any time we'd like to.  However, there are several small areas of water damage to the plaster (in 3 of the 4 units).  These have not been repaired as per our purchase agreement.  Additionally, upon further investigation, it was revealed that the valleys underlying the tile roof are in need of repair and/or replacement soon.  The contractor we spoke with told us that some areas of the roof had chipping tiles and he thought the whole roof might be bad.  We got an estimate on repairing the valleys, which could be anywhere from $200-$10,000.

The seller agreed to put $10,000 in escrow towards any repairs that may be needed come spring, when a thaw will allow a roofer to assess the condition of the roof.  

The seller also had a full roof inspection 4 years ago, at which time the roof was said to be in good condition.

My husband is anxious because we can't verify the condition of the roof as a whole.  If the entire thing needs to be replaced, we're looking at up to $30,000.  This is unlikely given the information we have in our hands, but again....we don't have all the information because it's winter and no one can tell us whether the roof is working!  Sorry for the ramble.  Hopefully you can imagine our pickle.  Let me know what you think.  

Thanks!

That's a nice looking 4-family. Tile roofs last centuries in Europe. I would really doubt the whole roof needs to be replaced, unless they do damage replacing the valleys. They saw deterioration in the attic or can you see issue from outside? It would be nice to have a visual of the issue.

Thanks for the input!  @Candace Ellison we are not yet factoring property management, but we're willing to cut into our profits sometime in the future (once we own about ten doors.)

@Anthony G the best we have in a roofing master from Germany who spoke with us on the phone and viewed GoogleEarth views of the roof.  He was speaking from experience with this type of roofing and echoed what you have said regarding the longevity of the materials used.  He was hesitant to give a firm estimate, but did put out $5-10k as the upper range for repair of the valleys.