4 family great location in rough shape..is the juice worth the squeeze?

4 Replies

BP, 

I have an 4 family under agreement in a affluent town north of Boston, very low vacancy rates and majority single family higher priced homes in the area. Property is located in a great  location with ample parking (commodity that proj. will give me additional $300-500/mo income).

Have had an inspection,  the house is old and in need of renovations for sure, to get it to rental quality my partner and I are estimating $55k in repairs, which we have into our 10 yr. construction loan mortgage (interest only for 1 yr.)

With that being said, if we use the total construction costs, or debt service on mortgage + RE taxes and water/sewer = $2,100/mo or 24,800 annually

Conservatively projected gross income= $4,050/mo or $48,600 annually

Tenant pays on electric which is heat and lights/plugs.

I understand with the 50% rule on expenses this would not cash flow ideally how I would like, however approx. $300-400/month of the income is parking which shouldn't need too much upkeep, and is 50% accurate for 4,000/mo property in income?

 Any thoughts if this property is worth it, long term or more of a shorter term fix, rent out and sell as a fully performing asset? 

Purchase price: $351,000

Gross income: $48,600

Mortgage/Taxes/water&sewer(paying on mort. at $405,000): $24,800

Fully performing (4 tenants) After Repair Value: $475,000-$500,000

I have taken into account costs associated such as cap ex, prop, management, vacancy,etc..  any advice would be great thanks!

Read this thread. It helped me understand a lot about the rule and how it does (and doesn't) apply in high-cost areas like Boston.

edit: wrong link

Thanks Beau! appreciate the quick response, and that is more in line of what I was thinking. 

The 50% rule is just a ball park figure.  I would get a better handle on expenses before considering for a buy.  These expenses should include:

Vacancies-I use 5% of rent unless I have other information.

Management-  I usually am paying 10% of rent + 1 month's rent to fill vacancy

Maintenance-I would use $1,000 per unit

Capital reserve-  I would use $2,000 for property.

Taxes-I use last year's taxes + 10%

Insurance-based on quote

I find that expenses are usually higher than 50% on rents under $500.  I would assume that they could be lower than on a property as you are describing.

Good Luck.

Bill

 

@Kevin Olson   Welcome to BP! It's always nice to network with fellow North Shore investors. I live next door in Beverly.  I would say the answer to your question depends on your long term investing goals. You mentioned a partner, so would the monthly cash flow be enough to satisfy the desired return of each party? Have you considered converting the building into condos? You can get a higher return immediately over rentals or flipping as a multifamily. My office purchases multis and converts into condos successfully on the North Shore. Let me know if you want to know more about this strategy, or if you have other questions. Good Luck!

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