Hey everyone. I'm thinking about pulling the trigger on a 4-family in the Cincinnati area as my first REI deal and was hoping to run it past a few of the more experienced investors here on BP. I would be purchasing it as an owner-occupant and also taking advantage of the Neighborhood LIFT $15k grant that is currently available in the area. The building is 124 years old with a stone foundation. I visited the building on a rainy day and noticed water was seeping through the basement walls in multiple spots. I've lived in places with leaky basements before that didn't seem to be an issue but it did throw up a red flag. Does anyone have any experience with this or recommendations? The rest of the building looked great with no signs of foundation settling (not an expert but I was impressed by the condition of the units). Anyways, here are the numbers:
Vacancy (10%): $3,030
Repairs (8%): $2,424
Prop Mgmt (10%): $3,030
Mortgage: $7,980 (3.5% down plus $15k from grant money)
I think I've been very conservative with my numbers but want to be sure I reserve enough in case something goes wrong with such an old building. I have not been through the eligibility review for the grant program so the alternative would be 20% down and no PMI. I plan to manage it myself for the first 5 years (have to remain owner-occupant for 5 years for the grant program) so the 10% set aside for prop mgmt could actually go towards cap ex.
Let me know if you need more info or if I need to clarify anything.
Remember the numbers are only part of the picture.
This looks like a house hack - NICE. Great way to get started.
- What effect does the loss o rent have on the overall picture?
- What has the vacany rate been in the past?
- What are the current renters? (Section 8, Transients, Long term families)
- Are the rents used in the calculations below/above/at current rents?
These are just some of the questions I can think of off hand.
The money is made in the purchase of the property.
- What the condition, will you have to invest money into fixing it?
- What have other 4 unit sold for in similar areas?
Hopefully This give you some more to consider as part of your analysis.
Sounds expensive to me. How did you find this deal? Is this a turnkey seller?
Too, how is the neighborhood, what is the crime rate, percentage of section 8?
Make sure the neighborhood is solid.
@Nicholas Elliott ...assuming this property is held by someone now...have you arrived at the GOI with actual expenses? How sure are you of your NOI number? The numbers you presented seem pretty superficial...
Why are utilities so high?
Thanks for all the input!
@Aaron Hall Loss of rent will result in me having to contribute a small amount monthly but this would mostly go towards building a fund for vacancies, repairs, cap ex, etc. PITI would be completely covered. Vacancy rate was listed as 10% on the property listing...not sure how accurate that has been. Tenants are a mix of transient and long term family...no section 8. Still doing some research on comparable sales in the area and average rents. Both seem to be average at this point. Thanks for your reply! Going through your questions definitely helps me think more about the big picture.
@Bob E. Still doing my due diligence on the neighborhood. It's only about 10 minutes from where I currently live but not the same neighborhood and not an area I frequent. However, I know many coworkers that live in the area. Found the deal on the MLS through my realtor. I also think it's a tad expensive...we're still working through that. Thanks for the reply!
@Brandon Sturgill All numbers came from the listing except for the 10% I estimated for property management. Thanks for the reply!
@William Hochstedler Utilities are separate but the current owner pays them so that's why they're so high. This seems to be the norm in this area. Something I would consider changing if I end up buying the property. Thanks for the reply!
I don't think the property needs much work as of right now...however, that might change after an inspection. The basement/foundation is what I'm most concerned about.
I'm curious about the leaking foundation. Is the building on a slope? Why would the foundation be leaking, especially from multiple places? Is this simply a case of poor drainage that could be corrected by superficial grading/compaction/and or drainage via a swale or pipes?
Is this Clifton, Mt Auburn or Walnut Hills? Or is this Price Hill?
The rents are $600-$650? Are these 2 BR/1Bth?
Finally, is this a cool looking, architecturally interesting building? Will it always be zoned residential or is there the possibility that it could someday be zoned commercial ?
I'm very interested in Cincinnati multi family but can't wrap my head around providing heat in the winter...
Just wanted to share my current situation as it sounds similar to yours, I cant really speak to much to your specific deal but maybe this will help you. We are currently living in one of the units of a 4 unit Multi family. Our first purchase, FHA, Etc. My wife and I created a separate "house checking account" and we continue to pay Rent on the first just like the tenants at the rate that we would rent our unit out for. We found that By keeping the house money separate and only using that account for direct house related expenses, we were able to track the performance of the investment. We got a check book with carbon copy checks and no debit card attached to the account to facilitate tracking the money. We have seen that the other three units pay for the expenses and our "rent" seems to be "saved" every month. Plus with the security deposits and last months rent deposits you can compartmentalize the money from the house and be able to keep a close eye on it. We are celebrating 2 years in the house February 6th and we are about to close on another duplex that should cash flow nicely. We have used the money that stacked up from our rent to pay off some old credit cards, pay off vehicles, install a coin op laundry room (highly reccommended) It has really been the key to us moving forward financially. I wouldnt worry about the stone foundation, its been that way for a long time and if you can get it past the FHA inspection I say go for it, if you do it right you will be onto another property in a few years. I do contractor work for a living so the repairs and things dont really scare me, I would reccomend trying to do as much stuff as possible yourself, just try to figure it out if you have the time, if you are going to be dealing with houses you might as well dive right in. Good luck
@Nicholas Elliott I've never seen a stone basement that didn't leak in Cincinnati or Dayton. They were not designed to be dry like a poured foundation. However, there are still some questions about your deal.
- A traditional 4 unit should have lower utilities. Is the owner paying for water and anything else?
- Insurance is inline.
- repairs/reserve/capex should probably be higher, but depends on the current condition of major repair items (roof, windows, furnaces, etc)
- Love the grant money
- PMI seems low, and is always expensive. Can you structure a deal with zero PMI?
- Can't say anything about price, or the rents. That is all neighborhood specific. If it's in Hyde Park, it's probably a killer deal. If it's in Price Hill (or Avondale, "shudder"), it's a deal that could kill you.
A couple questions… How much water is running in, signs of flooding? Water is a landlord's biggest enemy. It's always best to have an inspector who has a lengthy history in inspecting older buildings. Okay question 2...Why would you pay a property manager 10% on a building where your living yourself? A four unit building should be nothing to maintain at all and it would be good experience to learn how to fix minor issues on your own. It's a great learning tool that will pay off on future investments. Good luck!
if the seller is serious on selling then I suggest you ask to ee the actaul number for as lons as they have owned the units. Look for number that don't add up. For example maintenance jumps through the roof one year. What was it that caused it. If they are serious then they should be willing to give you access.
Watch for renter problems. How long are the current leases?
Ask the owner about the water. See how they respond. What does their response tell you about what else they have told you.
Some sellers expect you to take their "estimates".
WARNING don't fall into analysis paralyis but do your due diligence.
I think its better for you that you take some good properties for 4 family. You must suggest the builder of that particular property to repair the defects of that whole apartment. The cost of the property should be reasonable and area should be perfect.
Thanks for all the input. I went back and forth with the seller but the deal ultimately fell through. The seller wanted an earlier closing date that I couldn't meet if I want to use the grant funds. Oh well...back to the drawing board. I'm checking out a couple properties this week that could be promising.
@Andy Mink Thanks for sharing your story. I'm hoping to be in a similar situation. Sounds like it has played out well for you.
Thanks again for the input...best of luck to all
I recommend increasing repair monies. Definitely accurate comps and depending on location an accurate vacancy rate. Are you ready to be a property manager/landlord? Other than that dive right in. Goodluck
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