4 family deal - is 25% down worth it?

Question

I'm looking at a 4-plex listed at 190k that earns $2600 monthly rent (a little below market rates, but still enough to cash flow nicely - about $200/door). The property is in good shape with many recent rehabs - new roof, new boilers - and it's fully rented with very long term tenants who pay all their own utilities.

My dilemma is having to put 25% down, which would be about a 50k cash basis. This is a big chunk of cash to put in for my girlfriend and I who are just getting started (this would be our second property). Does this deal seem worth it?

Thanks for any thoughts and advice.

Conor Meehan · Answer

@Ned Carey That's a good point and I think why I'm hesitant. We would have some cash left for reserves (about 8-10k) so it's doable, but I can't help feel like it's a stretch or that we'd be going "all in" on this one property. Thanks for the reply!

Ned Carey · Answer

@Conor Meehan keep in mind 25% down is pretty much the norm now. You can do better sometimes but 25 is till the norm. My only concern would be if this uses all you cash. Do you still have cash for reserves? This sounds like a pretty decent deal but if you have to really stretch to do it then remember more deals are always coming.

Conor Meehan · Answer

@Jaysen Medhurst thanks again! Lawn and Snow is $500/year - would've missed that one. I've hit a snag with this one with flood insurance though but if I can figure it out I hope to move forward.

Jaysen Medhurst · Answer

@Conor Meehan, I'd bump up Cap Ex and Repairs to 7.5% each. Any electric, like outside common lights? What about lawn care and snow removal?

Lastly, any immediate repairs that you'll have to do. There's always something. This will reduce your overall ROI, so good to think about.

All that being said, still looks pretty good to me. Time to take action. Let us know what you decide and how it works out.

Conor Meehan · Answer

@Jaysen Medhurst Thanks for the reply. Here are my #s:

$189900 purchase price$2600 monthly rent ($650 x 4)

Monthly PITI = $1187.74

$242.74 - Taxes$166 - Insurance (including flood)$779 - Mort. Principal+Interest

Other Monthly Expenses = $515.32 $182 - 7% vacancy$108.33 - 5% Maintenance$108.33 - 5% Cap Ex$116.66 - Water/Sewer (only utility I pay)

Total Monthly Expenses $1703.06

Cash Flow = $2600-$1703.06=$896.94

This is for self management (w/ PM it would be closer to $650 CF). Do you think the numbers look good?

Jaysen Medhurst · Answer

@Conor Meehan, that works out to 19%+ cash-on-cash return. Few investors would turn that down, so, yeah, it's worth it.

My concern is if you'll actually get $800/month. Based just on the 50% rule, it's more like $550/month (13% return). Have you analyzed this with actual expense/rent numbers? Share them with the community so we can double-check your math and see if anything has been missed.

4 family deal - is 25% down worth it?

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