1st Rental Purchase, Buying Fourplex
Member since 2019 · 48 posts · 12 votes
Hey everyone, I'm looking to possibly put an offer on this deal for a fourplex in St. Louis.
Purchase Price: $225K
DP: $45k (20%)
Annual Gross Income: $27,060
Total Operating Income: $27,648 (less vacancy at 4%)
Total Operating Expenses: (including 5% for Maintenance, 10% for property management, taxes, insurance)
NOI: $17,053
Annual Cash Flow: $2498.60
Monthly CF: $208 (less mortgage (principle, interest, @ 5.25%, 20 year ammort.)
My estimate for my investment is about $50,000 all in. (closing cost, dp, minor repair)
So that puts my cash on cash at about 4.99% correct?
And cap rate is 34%?
Am I doing the math correct? My concern is that it seems like a lot of cash out of pocket for minimal monthly cashflow? Am I missing something?
Any thoughts on the deal?
Thanks everyone!
There is a formula on the city website for how they calculate water sewer and trash. Last year for our 4-unit it was:
Water & Trash: $360 quarterly
Sewer: $150/month
For insurance, figure 0.5-1% of the purchase price.
For taxes figure 1.25-1.50% of the purchase price, but this will vary depending on the neighborhood/zip code. The city is hard up for money so they really extort the hell out of anyone with an asset. I've heard crazy tax numbers from people in Benton Park West and other higher end areas. Our taxes have jumped as much as 10-11% in a year. in 63109 and that's not a particularly hot area. Take whatever last year's # was and tack on 10-15% and figure it'll go up at least 2-5%/year and probably more.
Landscaping our PM charges $30/trip which is twice/month in the spring/summer.
Definitely get a pest INSPECTION up front, we have had horrible issues with bed bugs and roaches at our 2nd property which we did not expect at all going in. Our lease charges pest control back to tenants which is nice for the bottom line, but tenants are generally not thrilled as you can imagine. Our PM now charges a quarterly fee to do furnace filters, pest control, and a number of other annual maintenance items. Figure like $100/unit per quarter.
Big picture, we have 3 years of numbers on our first 4-unit property and combined it's been:
(% of gross rents)
Vacancy 1% (very fortunate with inherited tenants, our 2nd building, across the street, was 16% year 1)
Management 11%
Taxes 9%
Insurance 4%
Fixed expenses (water, sewer, trash) 12%
Variable expenses 21%
58% total. This includes a couple of unit makereadies, some water/mold damage to one unit, replace both sewer laterals, and a good bit of maintenance on our boilers, so IMO 50-55% expenses is probably more typical.
These older buildings are not cheap to operate, especially when maintenance has been deferred/neglected by a prior owner. Ask me how I know :)
@Ruel K. Nice man. Thanks! That’s a good way to look at it. Being out of state, I don’t think I’ve seen a deal that good yet. Although, are you taking into account equity pay down and such or do you mean getting your investment back thru cashflow or flipping?
Hey @Chris Nerio I would definitely try for the conventional loan with the 30 yr amortization to make the numbers work for you. alot of what other investors put out here is valid... the main thing is making the numbers work for you. If there is room to increase the rents and the maintenance is not a big issue then I think you will come out on top. You do have room to bring the price down after the inspection so that can help with the numbers.
@Max Householder @Zach Stillman
When you are analyzing small multifamily units in STL.What is your general monthly or annual rule-of-thumb for expense listed below.
WST, Insurance, R&M, Pest ,Landscaping, Taxes
(Am I missing any expenses that are typical to STL )
I know that every property is different and you cannot have a rule-of-thumb for taxes.
Having analyzed enough deals have you seen patterns on how these properties operate?
There is a formula on the city website for how they calculate water sewer and trash. Last year for our 4-unit it was:
Water & Trash: $360 quarterly
Sewer: $150/month
For insurance, figure 0.5-1% of the purchase price.
For taxes figure 1.25-1.50% of the purchase price, but this will vary depending on the neighborhood/zip code. The city is hard up for money so they really extort the hell out of anyone with an asset. I've heard crazy tax numbers from people in Benton Park West and other higher end areas. Our taxes have jumped as much as 10-11% in a year. in 63109 and that's not a particularly hot area. Take whatever last year's # was and tack on 10-15% and figure it'll go up at least 2-5%/year and probably more.
Landscaping our PM charges $30/trip which is twice/month in the spring/summer.
Definitely get a pest INSPECTION up front, we have had horrible issues with bed bugs and roaches at our 2nd property which we did not expect at all going in. Our lease charges pest control back to tenants which is nice for the bottom line, but tenants are generally not thrilled as you can imagine. Our PM now charges a quarterly fee to do furnace filters, pest control, and a number of other annual maintenance items. Figure like $100/unit per quarter.
Big picture, we have 3 years of numbers on our first 4-unit property and combined it's been:
(% of gross rents)
Vacancy 1% (very fortunate with inherited tenants, our 2nd building, across the street, was 16% year 1)
Management 11%
Taxes 9%
Insurance 4%
Fixed expenses (water, sewer, trash) 12%
Variable expenses 21%
58% total. This includes a couple of unit makereadies, some water/mold damage to one unit, replace both sewer laterals, and a good bit of maintenance on our boilers, so IMO 50-55% expenses is probably more typical.
These older buildings are not cheap to operate, especially when maintenance has been deferred/neglected by a prior owner. Ask me how I know :)
Hey everyone, I'm looking to possibly put an offer on this deal for a fourplex in St. Louis.
Purchase Price: $225K
DP: $45k (20%)
Annual Gross Income: $27,060
Total Operating Income: $27,648 (less vacancy at 4%)
Total Operating Expenses: (including 5% for Maintenance, 10% for property management, taxes, insurance)
NOI: $17,053
Annual Cash Flow: $2498.60
Monthly CF: $208 (less mortgage (principle, interest, @ 5.25%, 20 year ammort.)
My estimate for my investment is about $50,000 all in. (closing cost, dp, minor repair)
So that puts my cash on cash at about 4.99% correct?
And cap rate is 34%?
Am I doing the math correct? My concern is that it seems like a lot of cash out of pocket for minimal monthly cashflow? Am I missing something?
Any thoughts on the deal?
Thanks everyone!
Your cap rate is your NOI/purchase price which is about 7.6% (not 34%)
The deal is a marginal one - at 5% cash on cash and you have all the headaches of property management, it's not worth it.
The only reason I will buy a deal like this if I can improve the value by increasing rents substantially. Otherwise, NO DEAL.
Thanks for the feedback!! I appreciate!
I'm going to send you a connect and PM I have some other questions. If you don't mind answering
Without going as far as Max in sharing numbers, I found a mix of the 60% rule (50% rule plus an added 10% for old buildings ) and the 1% rule pretty accurate for south St. Louis.