First Deal: 4 Plex & Duplex

9 Replies

Hey BP folks, I"m a newbie but have been an avid reader but not an avid poster on the forums.

Here's a deal I'm working on right now, my first!!!

Same seller for both properties

4 Plex

Price: $130K

Three 2 bdrm 1bth units, One 1 bdrm 1bth unit

3 occupied, 1 vacant - (2 bdrm unit vacant)

rents are $550, 750, & 750 - potential rent of vacant unit is $850 - 950/mo

Gas and Electric are included in rent price

Utilities are budgeted with clauses in contacts that over a certain usage extra utilities go on the rent

Budgeted Gas & Electric are $130/mo/unit for both utilities

Taxes: $3462/yr

Insurance: $600 - assumed to be going up after appraisal

Water/Sewer/Trash: $137/mo

Steel roof just installed last year, siding have done on property, vacant unit has never been rented since renovation - completely new kitchen with new appliances along with an overhaul of the living room, bedrooms, and bath w/washer & dryer hook ups.

30yr fixed loan @ $566/mo pymt

Duplex

Price: $64900

Two 3 bdrm 1 bth units - small bdrms

Rents: $750/unit - both occupied

Gas & Electric included in rent - same clause in contract as above - $135/mo

Water/Sewer/Trash: $78

Taxes: $970/yr

Insurance: $400

30 yr fixed loan @ $283/mo

I think I can Net Cash flow this place around $200/unit/mo after I've set aside funds for maintenance and replacement reserves at around $300/mo total for both locations. Duplex has more deferred maintenance. Let me know what I'm missing or not figuring. Thanks.

Matt Kauffman, Hobbes Properties Ltd

incidental repairs, capital expenses, property management, vacancy factor, and others such as pest inspection, lawn care, etc

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

Thanks for the reply.

I've factored in landscape/lawn care, vacancy as well as some future money set aside for capital expenditures, but maybe not enough.

With all that said, thoughts on whether it's a good deal or not?

Matt Kauffman, Hobbes Properties Ltd

Why is the potential rent on the vacant unit more than the occupied units on the 4-Plex. I'd be conservative and use the lower rents the other 2 br's rent for unless there is a good reason. I'd take the duplex vs the 4-Plex, rents are higher, less tenants to deal with. Whenever buying 3 or 4 plexes, make sure they're zoned for that many units or you could potentially have big problems and a property that's worth much less. When utilities aren't separately metered it makes me think it may not be zoned for all the units, not always but look into it.

Matt whether its a good deal or not depends on your financial plan for the subject property.

Each property is different, some properties are more of a capital gains play and some are more of a cash flow play.

Do you have criteria for your investment?

Before I work on a financial plan I always ask what it is that the client is trying to achieve and the key is to begin with the end in mind.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

I am not a pro, but I do have two 4-plex's under my belt.  With that said those numbers look pretty good.  I got a deal for my area at 250k, 4- 3/1 at $725mo.  I would take both of those deals anytime... if they were in my market.  The only thing I don't like is having to pay for their utilities.  It would be annoying to have to chase up renters to settle the extra balance of their utilities.  I would try to get them metered so you don't have to worry about it.

@Josh D. Seller merged the utilities because he had tenants in the past not pay utilities and in Ohio the utilities don't follow the tenant. the building owner eventually has to pay them to turn them back on. this was to alleviate that issue of tenants opening utilities with their kids SS# and not paying the utilities. The higher rent potential in the vacant unit is because it has been completely redone with new kitchen everything including cabinets and Stainless Steel appliances, faux fireplace, and beautiful trim. It's worth more than the other units that are not rehabbed at all.

@Matt P. i'm considering splitting them out again.

@Albert Bui My "why" is to buy and hold and gain cash flow. Capital gains are a bonus for me. 4plex is located on a nice residential street with lots of owner occupied SFH close to the college. Figure i can rehab the other units when they become available and put better tenants in than what is currently there and would fit the neighborhood better.

Thanks for the input.

Matt Kauffman, Hobbes Properties Ltd

The other reason I like this property is that the building is 4480 sq ft. So the units are larger than most 1 and 2 bdrm apartments available in the area and it's in a desirable area to live.

Matt Kauffman, Hobbes Properties Ltd

Wow that is ridiculous!  I can't believe that they sting the owners with the un-paid utility bill.  Could you cover your butt by having an up front utility deposit.. you could use that deposit whether you separate the utilities or not ( if they go over on their utility bill, the extra is siphoned off the deposit)

It sounds like you are getting a good deal in a good area.  Thats a great combo.

With the unit that is rehabbed, I would be careful asking top dollar for the unit.  My strategy is to ask at market or a little below market so you can rent it out faster but more importantly have more applicants to pick from so you can cherry-pick the more desirable tenants 

"Seller merged the utilities because he had tenants in the past not pay utilities and in Ohio the utilities don't follow the tenant. the building owner eventually has to pay them to turn them back on. this was to alleviate that issue of tenants opening utilities with their kids SS# and not paying the utilities."

I got burned by a tenant not paying utilities right after I bought my 1st 5-plex. Since I had just bought it I didn't know any better. After that I always made sure all utilities were paid in full before I returned deposits.

Since that time our utility company got bought out and they follow the tenant not the building.