Dallas 4-plex analysis

Multi-Family and Apartment Investing
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Dallas 4-plex analysis

Bryce Y.
Dallas, TX · Member since 2011 · 308 posts · 59 votes

Hey guys,
I am looking at buying my first investment property. Here are the numbers:

Asking 160k, but I plan to offer much less
Units are 2/1’s, rent for $595 each
Built 1984
Tenants pay utilities

Income: $595 x 4 = $2380 / month or $28,560 / year
Expenses (per month):
Insurance: $166 (no idea really, just guessing)
Taxes: $238 per DCAD
Vacancy: $238 (10%)
Management: $238 (10%)
Misc repairs/Long term capital expenses: $300
^ I just took 50% gross rents and subtracted all other expenses

NOI: $1200/month = $14,400/year
So offering $144k would put me at a 10 cap.

Now the financing. I plan to live in one of the units and use FHA financing but first let's calculate with conventional 25% down.
At 144k PP, 25% down = $36,000
Loan of $108,000 at 3.5% interest = $485 monthly payment
Cash flow of $1200 – 485 = $715 or $178 / door
ROI: 24%

FHA 3.5% down = $5040
Loan of $138,960 at 3.5% = $624 monthly payment
NOI of $595 (since I will be occupying one unit) means cash flow of -$29/month, but I will have a place to live.
Also PMI will cut into my cash flow as well, so say -$200/month.

I also plan to self manage, so that should increase my cash flow and ROI as well.

Now a few things:

1. The property is in a not so good area of town. For those that know, it is in zipcode 75223 just south of I-30. However, I drove by during the day and at night, and it doesn’t seem too bad. If I get it under contract I will scount the area much more thoroughly. The property is surrounded on both sides by empty lots, and sits next to a 3-lane road. Across is an industrial complex
2. Per the listing agent, the property is in good shape including roof, HVAC, and foundation. He won’t let me in until I submit an offer and it is accepted (with inspection contingency of course). I have no idea what kind of immediate repairs are necessary. How should I factor this in to my offer price?
3. There are separate gas and electric meters but a master water meter. I mentioned earlier that tenants pay all utilities. Per the lease, the landlord pays water then divides by 4 (or however many units are occupied) and bills the tenants. This seems odd to me. Any thoughts?
4. The tax value of this property is 98k. I know tax value doesn't necessarily reflect market value, but this seems like a huge difference. I tried to pull comps but I get nothing. This worries me because what if the FHA appraisal comes in significantly less? I will just have to come out of pocket to cover the difference?

Sorry for the long post! Any advice is appreciated. Thanks!

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Carlos Flores
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
13y

Bryce Y. In less than two minutes I discovered following: Sold 7/2009 for $100k, no seller PDs, 145 CDOM. Current CDOM 129. Per TXDPS, registered sex offenders in 2 of 4 units. 1 male, 1 female. Both had offenses against children, ages 9 and 11 respectively. 92 registered offenders within 1 mile.

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  • Gary Burnham Jr.
    Real Estate Investor · South Windsor, CT · Member since 2012 · 12 posts · 6 votes
    13y

    Bryce, I only speak from the 3 investment properties I have purchased in the past two years so I am no expert but thought I would share my experience and thoughts. A couple things that caught my eye. "The property is in a not so good area of town" This is a red flag for me as everyone that has coached me to buy properties said "there is no such thing as overpaying for an investment property in a prime location, but there is in a not so good location." lesson is do your due diligence on the vacancies, crimes, etc... around the area. Listen to what the community feels about the area because when potential renters ask around if there is a lingering negative stereotype about the area it will be difficult to get good tenants. PMI insurance. My thoughts are to avoid this unecessary expense at all cost if you can afford to. Your goal is to pile on more cash flow to get into your next deal. PMI cuts into the cash flow. Repairs, you have no idea whats right or wrong with the property until an inspection is done. If the inspection turns out there are lot of problems you can ask the seller for credits and you can ask the seller to pay closing costs to reduce your cash out of pocket expenses at closing. Hope this helps you get closer to making a decision.

    1Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y

    Thanks for responding Gary. The neighborhood is still a big concern for me. I will do a few more drive by's at night and see if I can really be comfortable living there. If I had a wife/kids, living there would definitely be out of the question.

    As for PMI, is there a way to get around this? I thought it was required for loans under 20% LTV? Does it depend on the bank doing the underwriting?

    0Reply
  • Carlos Flores
    Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
    13y

    Bryce Y. In less than two minutes I discovered following: Sold 7/2009 for $100k, no seller PDs, 145 CDOM. Current CDOM 129. Per TXDPS, registered sex offenders in 2 of 4 units. 1 male, 1 female. Both had offenses against children, ages 9 and 11 respectively. 92 registered offenders within 1 mile.

    8Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y
    Originally posted by Carlos F.:
    Bryce Y. In less than two minutes I discovered following: Sold 7/2009 for $100k, no seller PDs, 145 CDOM. Current CDOM 129. Per TXDPS, registered sex offenders in 2 of 4 units. 1 male, 1 female. Both had offenses against children, ages 9 and 11 respectively. 92 registered offenders within 1 mile.

    @ Carlos F. Wow! What website did you get all that info from? I guess this is an easy pass then...

    (sorry not sure how to do the @ thing)

    0Reply
  • Vincent P.
    Catonsville, MD · Member since 2012 · 2 posts · 3 votes
    13y

    Hi Bryce,
    Here's my two cents on the 4 questions you asked.

    1. I think you answered your own question, i.e. "If I had a wife/kids, living there would definitely be out of the question." Your prospective tenants are going to be thinking the same thing. Fighting the market/neighborhood will not work out in your favor. Personally, if I wouldn't feel comfortable with my mother living there by herself, I'd pass.

    2. You already mentioned an inspection so this is probably just an echo of what you're already thinking. The listing agent's interests are not aligned with your interests. They may be correct when they tell you the property is in good shape, but then again, they may just be trying to sell the property. In addition, all property inspections are not created equal. Some inspectors may have the expertise to assess things such as the roof, HVAC systems and foundations, but most do not. On a deal like this, I'd probably bring in my own HVAC guy to inspect each HVAC system, my own roofer to inspect the roof in addition to someone to inspect the foundation. In my opinion, these are the 3 areas that are most likely to kill your underwriting if you get them wrong. And I might add the sewer system.

    3. Dividing the water between units is fairly common. Search for Resident Utility Billing System and you'll read all about it.

    4. I don't believe tax values are a very meaningful way to determine market value. There could be many reasons for the discrepancy. You could probably call the assessors office and ask them for some insight on their methodology and then determine whether it should or shouldn't influence your opinion.

    Good luck.

    2Reply
  • Carlos Flores
    Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
    13y

    Bryce Y. the @thing - just start typing @first name. A list of names will magically appear. I used MLS and TXDPS website.

    1Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y

    Vincent Prunier Thanks for the advice. I guess I was thinking that I don't mind living in a not so good area just by myself. This would definitely be a temporary thing, but it seems the area is worse than I thought.

    On that note, how bad is living near a sex offender really? Obviously I would never rent to one, but as I'm looking at a map of Dallas it seems no matter where you live you will have a sex offender nearby.

    Carlos F. Thanks for that. I never knew about the TXDPS website. That's a valuable resource. I'm currently using investway, and I can't view any multifamily properties. Makes me wonder if I should renew my subscription...

    0Reply
  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    Bryce, where is the fourplex located? I own one fourplex in the DFW metroplex, and I swear I will never own another. Set aside the numbers, sex offenders, repairs, etc., and the fundamental problem with them, in my opinion, is that you don't really control the property. By that, I mean they are usually set up with buildings next to each other, and you have no control over who the other owners put in their buildings. This leads problems over which you have no control and is very frustrating. Also, in my opinion, you get the headaches of multifamily living (tenants sharing walls, collecting multiples rents, etc.) but they are generally not big enough to really have any economies of scale. Just my two cents.

    2Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y

    John Chapman This is the property in question: http://www.zillow.com/homedetails/1411-S-Barry-Ave-Dallas-TX-75223/2117908336_zpid/

    Are you saying that 4plexes tend to be in bad neighborhoods? Do you find the same holds true for duplexes and triplexes?
    I was thinking that starting out with a 4plex would be great because it would give me landlording experience plus the rents could offset the mortgage and allow me to live almost for free.

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    Ouch, Bryce. Barry Ave is very tough. Ya gotta be bullet proof down there.

    3Reply
  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    13y

    I gotta second Jon Klaus. I wouldn't touch that thing with a ten foot pole.

    I don't think all fourplexes tend to be in bad neighborhoods in our area. I just think they are a generally a headache and overpriced for what you get (obviously there are exceptions to the rule). I have as yet to ever see a duplex or triplex in our area that wasn't overpriced.

    Personally, my current plan is to acquire enough sfrs (which are super easy to manage with a full time job and are much more liquid) and then trade up to a larger multifamily (basically skip fourplexes and other small multifamilies). You can make money with fourplexes (and I've done fine with mine) but they just aren't for me.

    2Reply
  • Tinotenda Arigurinu
    Real Estate Investor in Training · Harrisburg, PA · Member since 2011 · 54 posts · 10 votes
    13y

    how are you doing Bryce Y. did you end up walking away from this deal? found anything else since then?

    0Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    13y

    Tinotenda Arigurinu

    I ended up passing on this one. Got another one in a better area for less.

    2Reply
  • Tinotenda Arigurinu
    Real Estate Investor in Training · Harrisburg, PA · Member since 2011 · 54 posts · 10 votes
    13y

    Bryce Y. thanks for the update, all the best with the new opportunity .

    1Reply
  • Andrew Ramler
    Investor · Dallas, TX · Member since 2013 · 36 posts · 16 votes
    13y

    Hey Bryce! I trust you are enjoying your 4plex. I also just(jan) closed on a 4plex in Dallas that I am living in and self managing. I would like to hear more about your place and what you are finding to work well. Just joined BiggerPockets and still figuring out how it work...

    0Reply
  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    13y

    Bryce Y. Andrew Ramler Just ran across this thread because I have "dallas" tagged as an alert. Would love to hear about both of your experiences thus far. I bought my first property in Dallas, a duplex, in February. One side is rented out and I am renovating the other. Learning a lot of valuable lessons so far, especially regarding contractor management!

    0Reply
  • Tim Tye
    Dallas, TX · Member since 2014 · 7 posts · 1 vote
    12y
    Hey everyone! I know this post is pretty old, but I'm particularly interested in all of the topics here. I live in Dallas and am looking to purchase my first investment property, potentially a duplex as an owner occupant. I also would love to hear about y'all's experiences. Andrew Herrig , how is your property doing now? Any insight or experience you could share would be greatly appreciated.
    1Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    12y

    That's weird that I never got notified of the earlier replies in May; sorry for not responding earlier.


    I have learned a great deal in the past 14 months and my perspective on investing in small multis (and REI in general) has changed a lot since I made this post.

    1. For a lot of different reasons, I no longer have any interest in buying a small multi and living in one of the units. In fact, unless the perfect deal comes my way, I have no interest in even owning my primary residence in the short term.

    2. The PMI/MIP restrictions which went into effect after the original post have changed the landscape of low down, OO loans. It just doesn't make sense financially anymore. Just my opinion of course.

    3. What @John Chapman said in his earlier posts I have found to be absolutely true. The one BIG advantage of small multis is the ability to get fannie mae financing. You can finance a 4plex at 100k or 25k per door, but not for a SFH for 25k. Everything else imo is a disadvantage (management aside, though I don't think it's that big of a factor)

    4. It is very hard to find a deal for small multis. Sellers in general are more sophisticated and there seems to be a huge demand for these types of properties, and consequently not enough supply, driving prices way up.

    I realize my post may sound very negative towards small multis and I don't mean to come across that way. I think it's still a great way to get started and if the numbers and location made sense, I would absolutely buy one.

    1Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    12y

    What would be an ideal next investment for you, @Bryce Y.? Ready to sell your 4-plex?

    0Reply
  • Bryce Y.
    OP
    Dallas, TX · Member since 2011 · 308 posts · 59 votes
    12y
    Originally posted by @Jon Klaus:
    What would be an ideal next investment for you, @Bryce Y.? Ready to sell your 4-plex?

    No, but everything's for sale at the right price :)

    As for what's next, I'm not really sure. I'm focusing on SFH's at the moment to take advantage of the low rates, but after that I'd like to get into other more active aspects of REI. The "problem" I'm finding with buy and hold investing is that it sucks up a lot of capital and (if done right) still leaves you with a lot of time at the end of the day. That's great for those who have lots of obligations, but being young and single I still have a lot of time and energy!

    0Reply
  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    12y

    @Tim Tye

    I bought my duplex about a year ago now, and so far it has been a great learning experience. My tenants on both sides have been pretty good, in fact I just re-signed a lease a few days ago. I would highly recommend a small multifamily if you can get it for the right price. As @Bryce Y. mentioned, it is very difficult to find small multis that cash flow in the Dallas area. I bought my duplex at probably the tail end of the good deals on the MLS. I have not seen anything nearly that good since. I have recently started some direct mail marketing to get more leads, but I am currently targeting SFH rather than multi.

    I will say that my one big mistake was in choosing a contractor. Or rather, in trusting that contractor to finish the job he started by getting ahead on the payments. Unbeknownst to me, he had money problems (was using current jobs to pay for completed jobs). He basically ended up having a nervous breakdown, was in the hospital for a week or two, and the whole Ponzi scheme fell apart. Never heard from him again. Expensive lesson learned: do not pay for ANY work not yet completed.

    1Reply
  • James Mudd
    Real Estate Agent · Realtor - Dallas, TX · Member since 2013 · 342 posts · 55 votes
    12y

    Lol....y'all are killing me...so what is better? SFR or MF. I was thinking duplex...then I was thinking go big with a 4-plex....now I have been reading SFR 3/2 are the way to go. So would it be better to acquire 2-3 (4-plexes) or 2-3 SFR....to me it seems like the 4-plex option because it's 8-12 doors....compared to 2-3 doors.

    I'm all over the place with this....your opinions would be great to hear.

    0Reply
  • James Mudd
    Real Estate Agent · Realtor - Dallas, TX · Member since 2013 · 342 posts · 55 votes
    12y

    @Bryce Y. ....Hey Bryce are you continuing to rent for your primary residence? I am thinking about doing this to keep my DTI freed up for investment property. Even though I am paying someone else every month...the benefit is I can reach my goal quicker.

    I am getting house fever, so need a little help here. I saw a house I really want for myself...trying to stay focused. If I buy a home for myself, then my DTI will be jacked...therefore investing much much slower...help me!

    0Reply
  • Jim Farrell
    Clarksville, MD · Member since 2012 · 67 posts · 8 votes
    12y

    I must admit I don't understand the objection posted by @John Chapman as to investing in small multis. To me, management is the primary difference as a buy-and-hold investor in terms of how it performs. And if I own 4 SF homes in different parts of town--versus 4 units all in one place--there goes the probability of management headaches increasing. Leaky faucet, HVAC doesn't work, on and on...

    I also don't follow the control issue mentioned by John. Whether you have a rogue tenant on the other side of a wall or the next home over, it doesn't make a difference. There's only so much you can control, and how neighbor investors rent their units isn;t one of them.

    I'm all for diversification--and I do own 2 SFH in Memphis--but going forward I'll be buying small multis all day long over SFH.

    0Reply
  • John Chapman
    Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
    12y

    @Jim Farrell there's really not much more I can elaborate on with the problems that I observed with small multi's. (Again, I tried to limit it to issues I've observed in DFW.)

    However, I will address the "control issue." With an SFR, I was assuming that you are not buying in a neighborhood riddled with rental homes. If there are a ton of rentals in your neighborhood, then I agree, you probably are going to be facing the same rogue tenant issue. (Lousy landlords putting lousy tenants in that drive your tenants crazy.) If you are buying in an area with lots owner occupied SFRs, then the rogue tenant issue goes away.

    As for efficiency, I stand by what I said. The problem with your example about 4 homes vs. a 4 plex is that you are still relying on contractors (not full time maintenance people) to make the repairs. That's a trip out every time something breaks, which is expensive and inefficient. I'm not sure I see the difference in cost if I have four leaky faucets at a house throughout the year vs. four leaky faucets at a fourplex. It's not like all the repairs are going to happen at once or anything. In fairness, a small multi probably does have some minor efficiencies compared to an SFRs (e.g. servicing HVAC), but they are not significant enough in my mind to justify the increased management headache.

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