Quadplex Question for a newb

Multi-Family and Apartment Investing
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Quadplex Question for a newb

Joey Newton
Saint Louis, MO · Member since 2016 · 28 posts · 3 votes

Could some one double check my math?

Good morning everyone. 

Totally selfish question but, I am in negotiations with a landlord who wants to sell 2 quadplexes in St. Louis. I am very green when it comes to multifamilies, and I was hoping that some one could look in to there hearts, and go over the numbers on this deal just to make sure I am not making a bad purchase. Again, they are selling 2 buildings each with 4 units, each unit is a 2 bed 1 bath. The tenants have a laundry/ dryer hookup, and a small storage area in the basement. He is trying to get $195,000 per building, and the average rent for all 8 units in $685. The operating cost on each building is almost identical, so I will just use 1 building as an example. 

Taxes/ year: $3,002,  Insurance: $1,573,  Trash/ year: $654,   Electric/ year (exterior lights): $420,   Water/ year: $1,200 sewer/ year: $1,500,   Spray for bugs/ prevention: $311/ year,    Lawn cutting/ year: $640,   Misc (furnace filters/ 9v batteries): $250

I have gotten mixed reviews back from my colleagues when they go over these numbers with me. Some say it is a great deal, some think not. If some one who has some time in the saddle regarding multifamiles could look at this for me I would be forever grateful.

- Joey

1Reply
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Neal Bawa
Rental Property Investor · Fremont, CA · Member since 2018 · 122 posts · 104 votes
7y

I have over 1,600 multi-family units that I own and manage, so I feel that I can contribute to this discussion. Here are my two cents.

Looks like you've already gotten really good advice on the capex. The 1% rule was also mentioned. So let me skip those and go to a different viewpoint. While the 1% rule is a great General guideline, what really applies in an area such as St Louis, which is predominantly a Class C or worse area for cash flowing rentals it's something known as churn. Churn is the frequency with which you lose tenants, either because they want to leave, or because you're forcing them to leave through an eviction process churn is the real killer of profit and is not covered as often by BiggerPockets or other forms as it should be, in an area such as st. Louis or Detroit or South Chicago or Kansas City Kansas. You should be looking at the quality of the area to determine what the churn in that area is going to be. I have taught many multifamily classes on this, and one of the simplest ways to determine churn is to go to City- data.com, and plug in the zip code that your property is in. Now scroll down to see what the median household income level is in this ZIP code. If the income level in the zip code is very low, you will have a large amount of churn. The general rule of thumb that I provide is that you want the median household income level to be above 38 K in the Midwest and above 40K in the rest of the u.s. numbers below this, cause tremendous churn, which will spike your repairs and maintenance cost and kill your profits. This is why, you commonly see buildings not only crushing the 1% rule in St Louis, but even crushing the 1.5% rule. if it was this easy to make money in St Louis, everyone in the world would be buying in St Louis. But the locals know about the churn issue, and so the 1% rule should not apply to most of the c neighborhoods in areas like st. Louis. Another metric to look at in city data is poverty level in that particular zip code. You want the poverty level to be at 10% or below to prevent eviction and delinquency related churn. In certain cases numbers between 10% and 20% could be acceptable. But poverty levels higher than 20% cause excessive churn and delinquency and eviction related costs. So keep those in mind.

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  • Austin Andrews
    Real Estate Broker · St. Louis, MO · Member since 2018 · 101 posts · 85 votes
    7y

    Joey,

    What area is this in? Occupancy? Is there a way to get tenants to pay for water to lower that expense? Do the tenants have to provide their own laundry/dryer or do they come with the building? Flat or pitched roof?

    The biggest thing to consider on these is Cap Ex. I.e. how is the roof and when was it last replaced? Does it have PVC stacks? HVAC and forced heat? How old are the systems, such as the water heaters? 

    Are the units updated, or could you do some updates to up the rents?

    Feel free to PM me if you want me to look over anything. 

    Congrats on joining the multi-family investment world!

    -Austin

    9Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Joey Newton Congrats on the find! The numbers work, however St. Louis is a very mixed area and we know nothing about the age of the buildings, or location, or condition, or neighborhood. So it could be great or terrible, depending on those answers. All the best!

    1Reply
  • Dallas Gardner
    Mount Pleasant, UT · Member since 2017 · 1 post · 1 vote
    7y
    @Joey Newton run it through the bigger pockets calculator! But soft looking at it I think it would be nice. It's above the 1% rule which is hard to find where I'm at. I also havent bought anything yet so take that with a grain of salt!
    1Reply
  • Noah Rosenblatt
    Saint Louis, MO · Member since 2018 · 6 posts · 2 votes
    7y
    @Austin Andrews Could I ask about the ramifications of some of the things you were talking about? Would a pitched roof be better than a flat roof overall? I assume so because of rain management. When you say PVC stocks, are you referring to if the piping in general is made of PCV instead of cast iron? Is there any general preferred form of HVAC for ~Class B properties? Thanks.
    2Reply
  • Alvin Sylvain
    Los Angeles · Member since 2018 · 464 posts · 471 votes
    7y

    BiggerPockets isn't the only online source for RE calculations. Attached is the result from DealCheck.IO, and includes Capital Expenditure of 5% and Property Management of 10%.

    I don't know whether this will work or not, it's a PDF file. Well, it's worth a try. EDIT: I think if you right-click the little square, then select "View Image", it should download the PDF. Note that it includes pictures of St. Louis City Hall, as that's the only address I gave it.

    4Reply
  • Kyle Bruns
    Saint Louis, MO · Member since 2018 · 16 posts · 18 votes
    7y

    It looks like the numbers work out for this property. What you should be asking yourself is, are you ready for 8 tenants, and maintaining 2 very large, very old buildings. I'm am assuming there is deferred maintenance that will need to be completed, etc. This type of investment could be very time consuming in the early stages, but once you have the property performing, it can be very easy to manage and maintain. 

    I wish you luck in your adventure.

    3Reply
  • Max Householder
    Rental Property Investor · Saint Louis, MO · Member since 2014 · 313 posts · 326 votes
    7y

    Location, location, location is critical in St. Louis. Where these buildings are matters a lot on whether these numbers will work. Like @Austin Andrews said, the condition of the main systems (roof, stacks, hvac, electrical) matter a lot. Also what updates have been done? Vinyl windows? Has tuckpointing been maintained? Is there still knob & tube wiring? If it's in a decent area then you might be able to hit your rent numbers, but if you need to replace the roof and stacks that could be several years worth of cash flow. Also, bank on those taxes, sewer bill, and water bill going up substantially every year in the city; City Hall sees landlords as little ATMs for them to pillage. Don't forget about occupancy inspections, that's $100 per unit pretty much every year you have a turnover.

    Like Austin also mentioned, what is physical vs. economic occupancy? A unit could be "rented" on a lease at $685 and they aren't paying. Also the layouts, are they true 2-bedrooms or is a "bonus space" counting as a 2nd bedroom that almost nobody would use as such? They could have one unit that's actually set up as a 2-bedroom and is recently remodeled that they get $850 for and another that's a dated 1-bed and only $520. Welp, "average" rent is $685 and that's the average for occupied units, if several are vacant, don't assume they will fetch the average for the building without being renovated or improved. Just some things to think about. Trust, but verify.

    3Reply
  • Kenton Coffman
    Real Estate Agent · St. Louis, MO · Member since 2017 · 34 posts · 26 votes
    7y

    @Noah Rosenblatt Pitched roof is better than flat roof, less frequency with maintenance and better water management.  PVC stacks better than cast iron-eventually cast iron will need to be replaced but that could be way down the road.  And central air has different considerations than window units with central air being more desirable as long as it is paid for by the tenants.  

    @Joey Newton I agree that it depends on the area.  St. Louis Hills-great deal.  Riverview-not a deal.  Also depends on style of building.  If you send me an email, I can send you some comps for the area which can be helpful.

    2Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Austin Andrews:

    Joey,

    What area is this in? Occupancy? Is there a way to get tenants to pay for water to lower that expense? Do the tenants have to provide their own laundry/dryer or do they come with the building? Flat or pitched roof?

    The biggest thing to consider on these is Cap Ex. I.e. how is the roof and when was it last replaced? Does it have PVC stacks? HVAC and forced heat? How old are the systems, such as the water heaters? 

    Are the units updated, or could you do some updates to up the rents?

    Feel free to PM me if you want me to look over anything. 

    Congrats on joining the multi-family investment world!

    -Austin

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Hey @ AustinAndrews,

    Thank you for the prompt response! It is 2 Quad plexes right across the street from each other in North St. Louis county, specifically Florissant area. 

    Hopefully this answers all of your questions: 7 units filled out of 8. I am investigating a way to sub meter out each units water, but it comes into the building on a single line. There is a hookup in the basement for each unit to have there own washer and dryer in the basement. Pitched roof, and both were replaced in 2016. All of the stacks are cast iron, they appear to be in good shape, but they are NOT  PVC. All units have forced air/ heat, furnaces are located in the basement and each unit has its own outside condenser for AC. Furnaces/ hot water heaters appear to be pretty newer, outside condenser units are 50/50 newer/ older.

    Some updates to units, only 1 washing machine in all 8 units! They could use updating. Average rents for the 8 units are $685, but i was told the average rent should be about $740.

    Hopefully this helps paint a better picture.

    Thank you

    - Joey

    1Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Bjorn Ahlblad:

    @Joey Newton Congrats on the find! The numbers work, however St. Louis is a very mixed area and we know nothing about the age of the buildings, or location, or condition, or neighborhood. So it could be great or terrible, depending on those answers. All the best!

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Hey @Bjorn Ahlblad,

    I agree, St. louis is an area that varies block to block. Unfortunately. Both buildings were built in the late '50s. They are located in North St. Louis county, Florissant to be more specific. I am taking a guess and I will say the area is "C" class.

    Hopefully that helps you understand my situation a little better now. 

    Thank you.

    -Joey

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Dallas Gardner:
    @Joey Newton run it through the bigger pockets calculator! But soft looking at it I think it would be nice. It's above the 1% rule which is hard to find where I'm at. I also havent bought anything yet so take that with a grain of salt!
    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Thank you @Dallas Gardner,

    I will head to the calculator soon, and see what it says. Thanks for the tip. I am trying to avoid the itch of NOT buying a property, and use my head.

    Thanks again, and happy hunting!

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Alvin Sylvain:

    BiggerPockets isn't the only online source for RE calculations. Attached is the result from DealCheck.IO, and includes Capital Expenditure of 5% and Property Management of 10%.

    I don't know whether this will work or not, it's a PDF file. Well, it's worth a try. EDIT: I think if you right-click the little square, then select "View Image", it should download the PDF. Note that it includes pictures of St. Louis City Hall, as that's the only address I gave it.

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Thank you @Alvin Sylvain,

    That PDF was very thorough. It sounds like it will only be an 8 cap. I would like it to be a 10 cap. 

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Kyle Bruns:

    It looks like the numbers work out for this property. What you should be asking yourself is, are you ready for 8 tenants, and maintaining 2 very large, very old buildings. I'm am assuming there is deferred maintenance that will need to be completed, etc. This type of investment could be very time consuming in the early stages, but once you have the property performing, it can be very easy to manage and maintain. 

    I wish you luck in your adventure.

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Thank you @Kyle Bruns,

    I agree, I will be jumping in to this with both feet. The buildings were built in the late 50's, which is not TOO old for St. Louis standards. I will take all of the luck you can give me!

    Have a great evening.

    -Joey

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Max Householder:

    Location, location, location is critical in St. Louis. Where these buildings are matters a lot on whether these numbers will work. Like @Austin Andrews said, the condition of the main systems (roof, stacks, hvac, electrical) matter a lot. Also what updates have been done? Vinyl windows? Has tuckpointing been maintained? Is there still knob & tube wiring? If it's in a decent area then you might be able to hit your rent numbers, but if you need to replace the roof and stacks that could be several years worth of cash flow. Also, bank on those taxes, sewer bill, and water bill going up substantially every year in the city; City Hall sees landlords as little ATMs for them to pillage. Don't forget about occupancy inspections, that's $100 per unit pretty much every year you have a turnover.

    Like Austin also mentioned, what is physical vs. economic occupancy? A unit could be "rented" on a lease at $685 and they aren't paying. Also the layouts, are they true 2-bedrooms or is a "bonus space" counting as a 2nd bedroom that almost nobody would use as such? They could have one unit that's actually set up as a 2-bedroom and is recently remodeled that they get $850 for and another that's a dated 1-bed and only $520. Welp, "average" rent is $685 and that's the average for occupied units, if several are vacant, don't assume they will fetch the average for the building without being renovated or improved. Just some things to think about. Trust, but verify.

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    Well said @Max Householder,

    St. Louis is an area that can be...... tricky.... They are located in north St. Louis county, Florissant to be more specific. I have walked through all of the units, and they are true 2 bed, 1 baths. The rent spectrum starts at $665 and go to $695. I was told the rents should be closed to $740. This information came from another source, not the owner. Also,  the owner states that 3 units are on leases, and the remaining 4 are month to month. There is 1 empty unit currently. There is some concrete work that needs to be done on one of them, and a fire escape eventually needs to be replaced on the other. I am concerned about these upcoming repairs. 

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y
    Originally posted by @Kenton Coffman:

    @Noah Rosenblatt Pitched roof is better than flat roof, less frequency with maintenance and better water management.  PVC stacks better than cast iron-eventually cast iron will need to be replaced but that could be way down the road.  And central air has different considerations than window units with central air being more desirable as long as it is paid for by the tenants.  

    @Joey Newton I agree that it depends on the area.  St. Louis Hills-great deal.  Riverview-not a deal.  Also depends on style of building.  If you send me an email, I can send you some comps for the area which can be helpful.

    0Reply
  • Joey Newton
    OP
    Saint Louis, MO · Member since 2016 · 28 posts · 3 votes
    7y

    @Kenton Coffman, 

    Only some one who REALLY knows STL would be able to drop the names of those areas so confidently, and more important accurately. You have impressed me. The buildings are located in Florissant. Send me an email when you get time please. 

    Thank you, and have a great night

    0Reply
  • Mike G.
    Real Estate Agent · Las Vegas, NV · Member since 2016 · 589 posts · 275 votes
    7y
    @Joey Newton local investing requires local detailed analysis. The devil is in the details as they say so for me to give you my .02 about two 4 plexes in St. Louis would be nothing short of pure speculation and if I were you I would never take action based on speculation alone. Trust but verify. I don’t know jack about St. Louis other than that’s where Nelly is from but I think that’s east St. Louis. Get my point. Best of luck. what Is the reason for the seller sellIng? Hpw motivated Is he? is he flexIble on prIce or terms? Deferred maintenance on the buIldIngs? dId you check the area crIme rates? 2 years renT roll requested yet? etc hope that helps and provIdes some perspectIve BP calculator .....
    0Reply
  • Aditya Maini
    Investor · Arlington, VA · Member since 2017 · 52 posts · 12 votes
    7y

    @Joey Newton Would you mind sharing generally how you were able to find this deal? Off of MLS, direct mailing?

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    7y

    If you have a way to get this financed you absolutely should buy it

    Yes. 100%. Do it. Get your game plan started. You’ll look back at this moment as the best thing you did. 

    Don’t find some reason to spook yourself. If you keep asking, looking, talking you will find some reason to justify backing out. 

    Get it. Then PM me to say “I got it bro!”

    3Reply
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