Should We Purchase This 100 Year Old SFH Turned Into a 4-Plex?

Question

The Investment:

My husband and I have put in offer on a 5,000 sq ft, 100 year old SFH that was turned into a 4-plex with an efficiency apartment in back.  It is a lovely property in a historic district, and we are literally paying 1/3 of it's value.  The ROI when fully leased would be almost 13%.

The Inspection:

We got the inspection report back yesterday, and there are some major concerns!

• 4 glass fuse panels
• cloth & aluminum wrapped electrical wiring
• some galvanized piping
• microbial growth due to sitting for a while

The Question:

Is this still a good investment?  Should we jump on it or run from it???

All feedback GREATLY appreciated!!

Thanks!

Greg Dickerson · Answer

All of the issues you mentioned are fixable. You need to get an electrician, plumber, and a mold remediation company to provide quotes for you. Once you have this information you can then go back to the seller and ask for a reduction in the purchase price to offset the cost to fix these items.

Beyond that I agree with the previous comments it will all be based on what’s your actual net income is and Hal spending money to make the repairs affect your overall return.

Roger Hefner · Answer

@Nita Martin if you get cheap enough most historical areas want a total rehab. Adds up..

Matt P. · Answer

@Lynnette E. Another thought here is to have a 5th landlord panel added for common lighting around the building and parking area.

Steve K. · Answer

@Nita Martin I agree with everything above: you definitely need to dial in your rehab estimate (and then double it for unexpected issues that are bound to crawl out from under the ancient floorboards). A potential concern that hasn’t been mentioned yet is that it is in a historic district. I’d look into what that means as far what hoops you’ll have to jump through to get approval, as you may be looking at considerable additional expense because the hysterical society may force you into a major restoration instead of just doing what makes the most sense for your business. These areas can be severely limiting in terms of changing anything or trying to adhere to a reasonable budget.

Nita Martin · Answer

@Dennis M. The purchase price is $116K.  The rents total $2700/mth.  Income is approx. $700/mth after expenses.

@Colleen F.  No lead or asbestos reported.

@Nick Rutkowski Thanks for your offer to help.  I'll definitely be in touch if we decide to go through with this venture.

Thanks EVERYONE for your input.  We TRULY appreciate it.  Much to think about @Ed Matson.  We definitely want to make a financially wise decision and not an emotional one (I love old buildings :).

Ed Matson · Answer

Not to be a wt blanket, but there's a reason this building is priced at 1/3rd of its "value". I would not purchase a 100 year old small multi with all of these issues when I could only expect a 13% ROI. 100 year old buildings that have been updated and don't have mold are very expensive to maintain.  You need all new electrical, some new plumbing, some mold remediation.  And that's only what your inspection revealed.  Once you get started with repairs expect some surprises.  I would want a substantially higher ROI to take on this work and risk. If you haven't rehabbed a similar building before with a similar scope of work, maybe you should pass.

Nita Martin · Answer

Thanks Guys...

So, we hadn't budgeted $100k for repairs b/c we were hoping to do some simple cosmetic work and maintenance.  Honestly, it would take quite a while to recoup that amount in the current market.  That being said, we definitely have a lot to think about.  My hubby is off tomorrow, so once we iron some things out, I'll update you all on our decision.

William Coet · Answer

Get some estimates on rewiring. If the galvanized piping is working, you don't need to change it immediately.  Although if there is other work going on at the house, you might consider changing it to avoid making another mess down the road, because in my experience old galvanized pipe eventually fills in with hardened substance and clogs.

John D. · Answer

It it a legal 4plex, or 5plex, or still zoned as a sfr?  At 5,000sf I agree you may be looking at an easy $100k+ remodel  what do you have budgeted for repairs? Capex ? Maintenance ?

Should We Purchase This 100 Year Old SFH Turned Into a 4-Plex?

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