Would you take this deal?

[Michael Mahung]

Hoping to get feedback on a 4-unit house hack deal I'm considering.
It's an Estate Sale so there is limited info about the property.

List price: $339,900
Financing: 3.5% down at 6% (est)
Debt Service & Closing Costs: $22,100 (est)

Est PITI: $2570.75/mo
Est Utilities (owner pays heat): $500
Repairs: $100
Vacancy (10%): $325
Lawn/Snow Removal: $100
Trash/Water/Sewer: $150
Management/Capex (10%): $325

Total Expenses: $4,070.75/mo

2ba 1ba: (owner occupied) ~$1050 arv
1bd 1ba: $800  ~$900 arv
1ba 1ba: $775  ~$900 arv
3bd 1ba: $1450 ~$1650 arv
Garage Parking: $50
Coin Operated Laundry: $10

Total Income: $3,085/mo
Estimated ARV Income: $4500/mo

Monthly P/L: -$985.75
Estimated ARV P/L: $429.25

Other expenses:
Renovating units (kitchens, bathrooms)
Upgrading electricity 100w to 200w for 4 units.
Replacing Original Windows (approx 40)
Unknown Age of Roof (rubber) & Heater
Tuck Pointing ~5-10k

Any feedback about the numbers or the deal itself would be greatly appreciated - does this seem like a good deal?

[Chris Seveney]

@Michael Mahung

Management and capex are extremely low in my opinion. You need to list all equipment and major work (roof/windows), out a cost to it, figure out it’s life cycle and determine a number

Also depending on location will you service hvac and other equipment or use a company? That is usually around $500/yr if you have a summer and winter as an example of additional costs.

[Michael Mahung]

Quote from @Chris Seveney:

@Michael Mahung

Management and capex are extremely low in my opinion. You need to list all equipment and major work (roof/windows), out a cost to it, figure out it’s life cycle and determine a number

Also depending on location will you service hvac and other equipment or use a company? That is usually around $500/yr if you have a summer and winter as an example of additional costs.

Thanks for this, this would be my first investment property so I appreciate your perspective. I'm assuming the best way to get an estimate for each item to be repaired/replaced would be to get a scope of work from the inspector then shop around for quotes?

[Luther Wilson III]

Bro, if you have the means to get into and maintain a quadplex for 3.5% down and the bank approves you and the property - go for it!  Sounds like you're wanting to do a house hack of sorts, is that correct?  If you're living in one unit and renting out the others then I think you'll be fine.  It'll be important to treat it like a true investment or a business - not a flip - if you hold on for the long term (5 - 10 years), utilize a sizeable amount of proceeds each month/yr to put back into the property, raise the rents periodically - you'll probably win.  Knowing the #'s is cool but rarely will they turn out the way you got 'em down on paper.  Whatever you come up with - cushion it even more, lol.

[Paul De Luca]

@Michael Mahung

Not bad cash flow, but not great either since it's only a little over $100/door. I think the quality of the deal really depends on what the total cost of rehab is for the items you gave. That will allow you to project an accurate CoC amount. Also I do think your water/trash/sewer expense is a bit low. I'd estimate more like $200-$230/mo for that ($50-$65/unit). Is the building metered or unmetered for water? The legal 2-flat I just bought is unmetered so my water bill about $217/mo which was higher than I expected.

[Michael Mahung]

Quote from @Luther Wilson III:

Bro, if you have the means to get into and maintain a quadplex for 3.5% down and the bank approves you and the property - go for it!  Sounds like you're wanting to do a house hack of sorts, is that correct?  If you're living in one unit and renting out the others then I think you'll be fine.  It'll be important to treat it like a true investment or a business - not a flip - if you hold on for the long term (5 - 10 years), utilize a sizeable amount of proceeds each month/yr to put back into the property, raise the rents periodically - you'll probably win.  Knowing the #'s is cool but rarely will they turn out the way you got 'em down on paper.  Whatever you come up with - cushion it even more, lol.

Thank you! I am planning to house hack and live in either the garden unit or one of the 1bd 1ba units. I was planning to renovate unit by unit as each tenant moves out and eventually cash out refinance to purchase my next property and scale. Kind of a house hack BRRRR

[Michael Mahung]

Quote from @Paul De Luca:

@Michael Mahung

Not bad cash flow, but not great either since it's only a little over $100/door. I think the quality of the deal really depends on what the total cost of rehab is for the items you gave. That will allow you to project an accurate CoC amount. Also I do think your water/trash/sewer expense is a bit low. I'd estimate more like $200-$230/mo for that ($50-$65/unit). Is the building metered or unmetered for water? The legal 2-flat I just bought is unmetered so my water bill about $217/mo which was higher than I expected.

That's a good point. I was only able to see two of the units when I saw the property yesterday, there will be an open house this weekend so I'll have a better idea about the rest of the rehab costs once I've seen them all. I'll have to ask about the water metering as well. Thanks!

[Jonathan R McLaughlin]

@Michael Mahung are u running the taxes at the old valuation or projected? Heat seems way low

[Michael Mahung]

Quote from @Jonathan R McLaughlin:

@Michael Mahung are u running the taxes at the old valuation or projected? Heat seems way low

Running taxes at projected, there was previously a senior freeze on the property but I would buy as an owner occupant. Heat was confirmed about $600/mo for the winter months

[John Warren]

@Michael Mahung there is a lot of info we would need to help, but if this is in a good area then I would go for it. Normally a 4 unit will bring in more like $4500 per month in most Chicago neighborhoods once it is stabilized (assuming some 2 bed units and a garage). This means you can eventually refinance out of that FHA loan down the line which will make this thing a very strong cash flow property.

Your vacancy is likely a bit high based on most areas of Chicago. We run 5% internally, and on a 4 unit you might even just put down 1 unit's rent for the year (as that is likely the most you see in most years). 

Management is maybe something you don't need to run if you are living in the property. I know incoming are a bunch of sophisticated investors who will tell you to always run management, but if you are putting down 3.5% and living in the property, do you really think you are going to pay a manager? The answer is probably not! 

Like others have said, my big concern is whether you will even be able to use the FHA loan. This is missed a lot here in the forums, but sellers (and listing agents) hate FHA deals since they have a higher failure rate in terms of contracts falling apart. If you can get a quality 4 unit with an FHA loan that cash flows, do it.

[Michael K.]

Quote from @Michael Mahung:
Hoping to get feedback on a 4-unit house hack deal I'm considering.
It's an Estate Sale so there is limited info about the property.

List price: $339,900
Financing: 3.5% down at 6% (est)
Debt Service & Closing Costs: $22,100 (est)

Est PITI: $2570.75/mo
Est Utilities (owner pays heat): $500
Repairs: $100
Vacancy (10%): $325
Lawn/Snow Removal: $100
Trash/Water/Sewer: $150
Management/Capex (10%): $325

Total Expenses: $4,070.75/mo

2ba 1ba: (owner occupied) ~$1050 arv
1bd 1ba: $800  ~$900 arv
1ba 1ba: $775  ~$900 arv
3bd 1ba: $1450 ~$1650 arv
Garage Parking: $50
Coin Operated Laundry: $10

Total Income: $3,085/mo
Estimated ARV Income: $4500/mo

Monthly P/L: -$985.75
Estimated ARV P/L: $429.25

Other expenses:
Renovating units (kitchens, bathrooms)
Upgrading electricity 100w to 200w for 4 units.
Replacing Original Windows (approx 40)
Unknown Age of Roof (rubber) & Heater
Tuck Pointing ~5-10k

Any feedback about the numbers or the deal itself would be greatly appreciated - does this seem like a good deal?

What are your estimated repair costs? are any units currently rented?

Compute the numbers based on the building being fully rented. Your living there is a flex cost that more than likely won't be permanent. Also, consider living in one of the smaller units (if possible). 339k for a 4 unit that can get 4000k+ rent per month is EXCELLENT, not sure how much work is needed to get those rents though.

Caveats are 

#1 It very well may sell for more than 339K, estate sales are generally priced to sell quickly but can still get bid up.

#2  If it's that cheap it may be in a rough area where it's hard to get those rents and reliable tenants, or it may just be in really bad condition. 

Hope this helps a bit!

[Michael Mahung]

Quote from @Michael K.:

Quote from @Michael Mahung:
Hoping to get feedback on a 4-unit house hack deal I'm considering.
It's an Estate Sale so there is limited info about the property.

List price: $339,900
Financing: 3.5% down at 6% (est)
Debt Service & Closing Costs: $22,100 (est)

Est PITI: $2570.75/mo
Est Utilities (owner pays heat): $500
Repairs: $100
Vacancy (10%): $325
Lawn/Snow Removal: $100
Trash/Water/Sewer: $150
Management/Capex (10%): $325

Total Expenses: $4,070.75/mo

2ba 1ba: (owner occupied) ~$1050 arv
1bd 1ba: $800  ~$900 arv
1ba 1ba: $775  ~$900 arv
3bd 1ba: $1450 ~$1650 arv
Garage Parking: $50
Coin Operated Laundry: $10

Total Income: $3,085/mo
Estimated ARV Income: $4500/mo

Monthly P/L: -$985.75
Estimated ARV P/L: $429.25

Other expenses:
Renovating units (kitchens, bathrooms)
Upgrading electricity 100w to 200w for 4 units.
Replacing Original Windows (approx 40)
Unknown Age of Roof (rubber) & Heater
Tuck Pointing ~5-10k

Any feedback about the numbers or the deal itself would be greatly appreciated - does this seem like a good deal?

What are your estimated repair costs? are any units currently rented?

Compute the numbers based on the building being fully rented. Your living there is a flex cost that more than likely won't be permanent. Also, consider living in one of the smaller units (if possible). 339k for a 4 unit that can get 4000k+ rent per month is EXCELLENT, not sure how much work is needed to get those rents though.

Caveats are 

#1 It very well may sell for more than 339K, estate sales are generally priced to sell quickly but can still get bid up.

#2  If it's that cheap it may be in a rough area where it's hard to get those rents and reliable tenants, or it may just be in really bad condition. 

Hope this helps a bit!

Makes sense. I could likely charge higher rents as well since heat isn't included in the tenants utilities.

1. I decided to pass on this property for now, during the open house we realized that the entire back porch was enclosed with siding and is sloping. We never got to see one of the units and there was no key for the garage - not comfortable buying something when I don't know what I'm walking into.

2. This property was in North Austin, relatively close to a gated community and lots of new construction. The area itself is more mid-low C class I would say. Nicer than South Austin, but "worse" than Belmont Cragin. It's fully rented except for the garden unit.

[Michael Mahung]

Quote from @John Warren:

@Michael Mahung there is a lot of info we would need to help, but if this is in a good area then I would go for it. Normally a 4 unit will bring in more like $4500 per month in most Chicago neighborhoods once it is stabilized (assuming some 2 bed units and a garage). This means you can eventually refinance out of that FHA loan down the line which will make this thing a very strong cash flow property.

Your vacancy is likely a bit high based on most areas of Chicago. We run 5% internally, and on a 4 unit you might even just put down 1 unit's rent for the year (as that is likely the most you see in most years). 

Management is maybe something you don't need to run if you are living in the property. I know incoming are a bunch of sophisticated investors who will tell you to always run management, but if you are putting down 3.5% and living in the property, do you really think you are going to pay a manager? The answer is probably not! 

Like others have said, my big concern is whether you will even be able to use the FHA loan. This is missed a lot here in the forums, but sellers (and listing agents) hate FHA deals since they have a higher failure rate in terms of contracts falling apart. If you can get a quality 4 unit with an FHA loan that cash flows, do it.

Thanks for the tip about vacancy, I've tried reaching out to several PM's about vacancy in different neighborhoods and have had trouble opening discussion.

I agree with your point about management, but my long term goal would be to hire a good property manager so I can have some peace of mind while I scale up so I like to run it with that in mind.
I ended up passing on this property due to finding many more issues/repairs during the open house. Additionally, we were not allowed to see one of the units despite giving 48 hour notice.

Really appreciate your input!

[Jonathan Klemm]

Hey @Michael Mahung - Nice work!  Definitely looks like you did your homework and put some effort into nailing the numbers down.  I'd definitely move forward on the deal if it is a place you are comfortable living.  What area of Chicago is it in?

[Eudith Vacio]

Hey @Michael Mahung - congratulations on taking the next steps to purchase a house hack - I think this is your 2nd post. North Austin still has some great deals that you can find where you can make some minor repairs and increase rents to make it a good cash flowing deal. Do you have a worksheet with all the details of your investments? I would highly recommend tracking on excel and saving the tabs so you get a better idea of the deals in the area and how the market looks in the specific neighborhoods. 

Would be happy to share my worksheet with you! Just send me a PM. 

[Michael Mahung]

Quote from @Jonathan Klemm:

Hey @Michael Mahung - Nice work!  Definitely looks like you did your homework and put some effort into nailing the numbers down.  I'd definitely move forward on the deal if it is a place you are comfortable living.  What area of Chicago is it in?

@Jonathan Klemm Thank you! Unfortunately the property is now contingent, it was in North Austin near North Ave & Cicero

[Michael Mahung]

Quote from @Eudith Vacio:

Hey @Michael Mahung - congratulations on taking the next steps to purchase a house hack - I think this is your 2nd post. North Austin still has some great deals that you can find where you can make some minor repairs and increase rents to make it a good cash flowing deal. Do you have a worksheet with all the details of your investments? I would highly recommend tracking on excel and saving the tabs so you get a better idea of the deals in the area and how the market looks in the specific neighborhoods. 

Would be happy to share my worksheet with you! Just send me a PM. 

 @Eudith Vacio Thanks Eudith! I had definitely overlooked North Austin but won't be making that mistake moving forward. I do have a spreadsheet I use to run numbers and track properties but would love to see what you have been using and finding success with.

I'll send a PM right now, appreciate it!

[John Warren]

@Michael Mahung you may have to get used to offering on properties even if you can't see all the units. That is how multiunits work. Seeing 3 out of 4 should give you a good idea, and then during your physical inspection you can see the building. 

I would encourage you to keep pushing if you find a 4 unit again. Vacancy rates in the Chicago market are 3-4% per year in most 
average neighborhoods. I think you are mostly right on the money running 5% maintenance and 5% CapEx. Keep up the fight man!

[Jonathan Klemm]

@Michael Mahung - No problem brother.  Don't be afraid to follow up with the agent even after it goes contingent.  Many times they fall out of contract and you might be in the right place at the right time to scoop it up.

If you are ever up on the nw side of Chicago don't hesitate to reach out so we can link up.