Should I buy this four plex?

Question

I am an Army Officer in my mid 20s. I am getting stationed at Cannon AFB in New Mexico and I found a four plex that has an asking price of $350,000 in the nice part of the city. Each unit rents for $950, and the owner pays utilities up to $100 each unit. I would finance this using my VA loan and occupy one unit, and possibly get a roommate. With the VA loan I would not have to put any money down and I plan to manage the property myself. Would this be a good property to invest in and are there any tips for a first time property manager?

Greg Foster · Answer

@Jerry W. It does. Thanks Jerry.

Jerry W. · Answer

@Greg Foster what he is referring to is 1% of sales price as gross monthly rental income.  example a place sold for $300K then gross rental income would need to be $3K per month to hit the 1% rule.  It is just a quick test, you still need to figure taxes, insurance, repairs, vacancy, cap ex, and maybe management fees in addition to the mortgage payment.   It is even better if your rental exceeds the 1% rule, example bought property for $300K but gross monthly income is $3500 per month.  Hope that helps.

Greg Foster · Answer

@Joel Owens Joel could you explain a little more about what the sales price ratio indicates. Your post

1% rent to sales price ratio would be 380,000 so you are just over 1% at 350,000.  What does this mean?  Thanks in advance.

Jordan Springer · Answer

Thanks for the input! I will look into all of that now.

Joel Owens · Answer

1% rent to sales price ratio would be 380,000 so you are just over 1% at 350,000. You might get to live there and rent out the other 3 covering most of your mortgage so that is one aspect of it to consider just over a straight investment.

I would be looking at a historical perspective over the last 10 years with rent growth and value of the property. Then I would look at the future land use map and how strong is the county and or city economic development and are they pro-growth?

Usually over a 10 year period I see a top and the bottom when most areas fell in 2007. If data show approaching that top again for your area you might want to change your plan. Buying at the top you only typically get principal pay down and some tax write offs. In a downturn there is usually no cash flow growth or appreciation increases meanwhile your dollars depreciate by inflation every year. So if you couldn't raise rents each year for 3 years you are actually losing money. Never be in the top part of the market for rents. So if you are looking at 2 bed units and the area goes for 800- 1,000 a unit you do not want to be at that 1,000. Better is 850 to 900. You want middle markets rents so if there is a shift you do not create massive turnover or rent markdowns to keep a tenant. Also check existing leases for effective rent.

Seller can claim 950 a unit but gave first months rent free. So instead of 950 a unit it is really much lower.

Michael Boyer · Answer

welcome Jordan...there is a great rental property calculator on bigger pockets to help you run those numbers in even more detail. And I have a short blog post on some classic books on landlording (on right side of my profile) that should be free at a library or low cost used...thanks for your service, too, btw... And also that may be one item to think of, what happens if you have to leave  and who will handle the place (ie outside local management).... Best of luck!