What do you think this four plex is worth?

10 Replies | Seattle, Washington

Near Covington, WA in King County, 8 Beds, 4 bath, coin operated laundry. Half an acre lot. Baths and kitchens could use some updating. 50 year old building. Roof and plumbing appear to be OK. Has asbestos/popcorn ceilings.

The deal cash flows, but I am mostly concerned about price and not overpaying. It was listed at 550K and I won the deal in a day. Listing as on market for 3 total before pending. Listing agent claimed they had cash offers with inspection and other contingencies above asking price and asked for "highest and best". Like usual, I called what I thought was a bluff and they accepted the offer before it expired that day.

Comps for four unit houses are hard to find for this city, but from what I found on Zillow doing comps it was worth 526K. I'm not sure. The deal cash flows, but the kitchens and baths need updating (so did the one comp for a four unit I found) 

Updated almost 3 years ago

*Meant they claimed they had cash offers coming in with inspection and other contingencies WAIVED.

Not enough info if you are asking help for evaluating. Only financials is "it cash flows". It can cash flow $10 or $10,000. What is the NOI? is it proforma or your numbers?

Just guessing that the cap rates in Seattle area are between 5-6%.. So NOI in the $27,500-$33,000 should be the target..

Good luck

Originally posted by @Hai Loc :

Not enough info if you are asking help for evaluating. Only financials is "it cash flows". It can cash flow $10 or $10,000. What is the NOI? is it proforma or your numbers?

Just guessing that the cap rates in Seattle area are between 5-6%.. So NOI in the $27,500-$33,000 should be the target..

Good luck

It's not a commercial property to get valued by NOI/Cap rate. I'm not asking for profitability, I know how to run the numbers for that....As I said I'm asking about the price of the structure compared to other four unit buildings in the area there, and since it is a four unit you don't value it by commercial standards....

@Jack B. appraisers dont value it as a commercial property, but that doesn't mean that you shouldn't value it as a commercial property. What an appraiser thinks a property is worth based on comps and what I think it's worth as an investment can be very different numbers. If you are planning to hold it as a rental, you should use your numbers to know what it is worth to you to move you toward your goals. If you are looking to simply fix and flip it, then appraised value is more important.

@Jack B.   Our region is unique in its current pricing.  Those out of the area scoff at a 5-6 cap while we're lucky to get one that high! You're closer to Seattle where we are seeing 3-4 caps!  Some of this is foreign money that is being parked here -not for appreciation but merely for safety. 

A 4-plex for $550k in Covington is a pretty good price.  I haven't seen a 4-plex in Olympia for less than $500k and they only last a matter of a few days.  And most of it is older stock built 30+ years ago needing upgrades.  My 2 bed rents are pushing $1100/mo.  I'm assuming you should get a least $1300 on an older unit so your pretty close to a 1% deal.     Do the smart upgrades and increase rent and you'll do fine … for King county! 

I agree with @Jason D. .  If your concern with "overpaying" is due to fear of not getting appraised that is one issue, but if you're not worried about appraisal just think about how this deal works with your long term plan.  Quite frankly, if it does, then it's worth whatever you think you should pay for it, not what anyone else thinks.

As for Zillow's estimate, if you cannot find any comps then how are they getting their value?  Zillow is usually spot on accurate when there are lots of comps, and a crapshoot when there are few.  

Jack I have direct experience with this property type in that exact area, PM me and i can go into details in private.

At first pass it doesn’t sound bad but I will need more details on general condition. Income counts also; even though lenders and appraisers look at comps, a higher or lower cap rate will still affect demand greatly. I personally know 20-30 investors looking only at small multifamily within an hour of Seattle, I can’t imagine how many others are looking also.

Originally posted by @Patrick Britton :

I agree with @Jason D. .  If your concern with "overpaying" is due to fear of not getting appraised that is one issue, but if you're not worried about appraisal just think about how this deal works with your long term plan.  Quite frankly, if it does, then it's worth whatever you think you should pay for it, not what anyone else thinks.

As for Zillow's estimate, if you cannot find any comps then how are they getting their value?  Zillow is usually spot on accurate when there are lots of comps, and a crapshoot when there are few.  

A similar four unit building sold for 498K a few months ago, but with a couple hundred less square feet and less land. Similar condition as far as kitchens, etc. 

Rents (below market): $4,300

Mortgage: $2,600

Reserves from rents set aside: $600 a month

Water/sewer/garbage and shared laundry room electricity: $500 a month.

Cash flow $600 a month + $500 a month principal pay down.

House has popcorn ceilings and the kitchens could use a remodel. But that would be a value add, as rents are far below market for these 2 bed 1 bath units.

Originally posted by @Mark Canton :

Jack I have direct experience with this property type in that exact area, PM me and i can go into details in private.

At first pass it doesn’t sound bad but I will need more details on general condition. Income counts also; even though lenders and appraisers look at comps, a higher or lower cap rate will still affect demand greatly. I personally know 20-30 investors looking only at small multifamily within an hour of Seattle, I can’t imagine how many others are looking also.

Thanks Mark, PM sent. I'm hesitant to post the exact listing despite being under contract, as I am wary of someone else deciding it's a great deal and telling me it's no good then pouncing on it when I bail on it. :-)

@Jack B. using the numbers that you recently posted (I'm assuming they are the property you are considering, not the sold comp), I would take the $4300 rent, subtract the $500/mo utilities, subtract $800/mo for reserves, ($600 is too low, in my opinion) and $600/mo. minimum cashflow, so I'm left with $2400/mo. That $2400/mo has to cover PITI (Dont know taxes or insurance in your area) with 20% down, and that would give me my maximum price for that property.