Deal Analysis Feedback (Dallas, TX)

5 Replies

Hey guys, hope everyone is getting a great start to the new year by reaping all of the tax benefits of our industry!

I am in the DFW market and if you're not from the area, the real estate market is BOOMING. Everything that's listed on the MLS is being bought above list price within 48 hours. I am considering a deal that is somewhat higher than the price range I was originally looking in, but if the numbers work, I don't see why I should pass on it. My agent found an off market deal that is asking $380,000 for a 4plex in Garland, TX. Now the area is an older part of Dallas, but it's a safe area and the neighborhood is full of similar 4plexes and all seem to be in B class shape from the outside. I am looking to owner occupy this property with a FHA loan. Here are the numbers I have.

Asking: 380,000

Closing Costs: 5,000

Down Payment: 13,300 (3.5%)

Interest rate: 5%

All 4 units are 2/1.5, with 1,020 sq/ft.

Unit A: 895/month

Unit B: 880/month

Unit C: 950/month

Unit D: 950/month

Cap Rate: 7.0

If I include all 4 units, then after 5% vacancy, 5% repairs, 5% capex, and 10% property management, the property should cash flow about $75 per month. I will be managing the property myself but the goal is not to, so I made sure to include it. But since I am going to be occupying it, should I analyze it without the 4th unit rent($880)? Because then it shows I would probably be paying out of pocket about $400 a month, which I still think is a win at this point in the market. 

All of the units have their own private backyards, private parking, and tenants pay all utilities. As far as I can tell, the interiors are in good condition. (Seller says that kitchen is updated, bathrooms are updated, and tile floors throughout.) Will confirm once I find out the actual condition.

My plan is to move into the unit bringing in the lowest rent for a year and then move on hopefully to another similar property and filling my unit with a new tenant.

I wanted to post this on BP because I know there's a lot of people that know more than me and I've met people that are really genuinely trying to help everyone they can in the forums. I was hoping one, you all could tell me your opinions on the deal, two, are their other numbers that I forgot to include that would help you all, and third, do any of yall have any creative ways to make this an even better deal, I'm all ears.

Thank you guys!

@Clark Kahawaii thanks for posting this.  4-plexes in Dallas are a lot scarcer than other markets and I've got some thoughts on just some things to consider:

  1. Comparables - with Multi-Family units in DFW finding comparable properties (comps) can be challenging. Get your realtor to examine comps that sold in the past 6 months, maybe 12 months. An FHA appraisal will require comps to be analyzed in this fashion.
  2. Rental Market - I feel that on a property at this price point I would personally like to see a higher rent number but it's also within tollerance.
  3. FHA Lender - since you are only bringing 3.5% down and your loan will have PMI you will cash flow less on this property. BUT your down payment is SIGNIFICANTLY less than any other loan product....well, almost any other loan product. There are some 3% down conventional loans with lower PMI rates. Ask your lender about these programs and if you or the property qualify for them.
  4. Rental Income - It would be nice if the rental income was used to qualify you but it may not be necessary on your income level.  Check with your lender and see how they prequalified you for this type of a property and make sure they can count your rental income if it is needed.  Not every lender will count rental income the same way.  Again, you may not need it but just have the discussion anyway.

Hope this helps in some way.  Feel free to ask more questions if necessary.

I would strongly suggest... before doing ANYTHING else... to try to get the owner to allow you you walk through the property and make a more accurate assessment of the condition of the property.

Ideally you bring a trusted GC with you to offer his professional opinion on the matter.

Just my $0.02

If there’s anything else I may be able to assist you with just let me know.

@Clark Kahawaii If you could swing 5% down I would compare FHA terms to conventional. You might be able to get a better deal going with a conventional mortgage.

What part of Garland is this in? How old is the building? Rents seem a little under market to me if it's truly a B neighborhood.

As @Andrew Postell mentioned, fourplexes are not easy to find in Dallas. And ones that come even close to the 1% rule are even harder to find. On the surface, this seems like a good house-hack opportunity.

I know Garland fairly well.  With those rents and the fact that it is a four pled I think it is more likely a C instead of a B.

Of course that is just a guess.  It could be a great deal of there is room to raise the rents.

Thank you guys for the input! It may be a C class neighborhood, but I thought it would be a B class. It’s a neighborhood of only fourplexes and they’re all brick and seem to be well taken care of. I agree though that rent makes it seem like it’s a lower class though. Rent comps show that I could raise rents some but not by a lot.

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