4plex too good to be true?

4 Replies

Hello all,
Im currently looking to break into real estate by investing in a multi family residential. I've found a fourplex of 4 town homes, 2B/2BA, in a decent location in Alabama listed for $220k. It has been completely remodeled with new cabinets, stainless steel appliances, carpet, paint ETC. It almost has that 'luxury' feel. Comparable rentals in the area are going for at least $750 per month. this appears to be a good deal and potentially profitable investment. The only catch is, all four units are currently vacant. Can anyone provide any insight as to why this property has been on the market for 4 months now, and is still at the original asking price? And why does this sound too good to be true?
Thanks,
SGT Donnelly
USMC

It is in the ballpark for being reasonable.  It exceeds the 1% rule.  Gross monthly rent is more than 1% of the purchase price.  $3000 > $2200

The seller may want the unit vacant so it shows better until sold.  Finding four tenants will cost $1500 - $3000 if you hire a property manager (in my area it would).

I can't say why an owner wouldn't decrease the cost a little after 4 months.  Sellers are often irrational.

Keep doing research on taxes and insurance.  Ask (via your agent) for P & L from the seller.  Arrive at guesses for utilities and expenses.

What city in Alabama is it?  Or Zip code?  I might be able to help if it's in the Birmingham metro area.

@William Donnelly

Without having more information about the property than what you have given it will be difficult for anyone to help you with this. Having said that, I can suggest some things you can do to try to find out the answers you are looking for or at least some of the things I would do to begin my diligence.

First, if you found this through a realtor then I would suggest trying to make arrangements to speak directly with the owner. That will give you some insight as to why the price has stayed the same and why it is still vacant if it is in such good condition. I will say that the owner does not seem "motivated" to sell if the price has not changed for four months and the units are vacant. That is only an assumption though.

The next thing I would do is go look at similar properties that are for rent in the area. While you may be correct on your estimation of comparable rents for the area there may be something that you are missing. Actually going to see other rentals in the area will give you a better idea of what people are paying and what they expect for that money. If you are working with a realtor then they should be able to help you with this. If you are not working with a realtor then look through the local ads and start calling about the rentals.

Remember that with this being a four-plex you will be competing with larger apartment complexes. They may have more amenities available (work out room, pool, free internet and cable, etc.). If they do then you will need to factor those costs in to your expenses when you are calculating whether or not this is a good deal for you. These "amenities" can add up for you and be tedious to make sure they work and are maintained if you are doing your own management. If you are not interested in adding the amenities then you will need to determine what value they have to a potential tenant and adjust your rental amount accordingly. This may make your $750 unit a $650 unit which changes everything.

My opinion, based on the information you provided, is that paying $220,000 for a property that potentially brings in a gross of $36,000 per year may not be as good of a deal as it sounds to you. Between vacancies, maintenance, management, and other normal expenses your costs are going to ad up to the point that all of the income is eaten up. Add to that the mortgage payment, insurance, and taxes and there may be a deficit when it is all said and done.

Again, without knowing more about the property it is almost impossible to give any reliable advice to help you. It may be a good deal for you and for the area. Just be sure to look at all of the variables and verify that what you believe or are being told is correct before you start putting money or credit on the line. You can answer your own questions, I believe, it is just a matter of knowing what the right questions are and where to look for the answers.

That's exactly the kind of responses I was looking for! Thanks a ton. I should know more of these critical answers in the coming weeks. It's in MS, not sure why I put Alabama lol

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