4plex deal analysis help

9 Replies

Happy Friday Eve Everyone!
Tell me how this one looks. Do you think I should try and offer lower than the 95k asking price? Obviously I was planning on offering a bit less, but not sure if the numbers would require an even lower offer. Just wanted some opinions if possible.
4 unit, renting for $1700.00 per month. Asking price, 95k. 19k down payment debt service = 78k
20 year ARM, 4.25%. taxes 2800.00. Insurance 1000.00. total PITIA payment = 799.66. Call it $800.00

Rental income = 1700.00
Debt service = 800.00
8% vacancy = 136
5% CapEx = 85.00
10% prop mgmt = 170.00(not using for now)
5% water/trash/misc = 85.00
Cash Flow = 424.00

BTW-i have only driven by the property, i am walking thru on Saturday. Just trying to get some numbers and thoughts in my head in case that i like it. Thank you as always!

For me it would depend on the shape of the building/repairs that it needs as well as the area. While it does Cashflow you need to determine what your min. CF per door is. Also if you have one vacant you are breaking even. Is there room to raise the rent? What class of area is it in? 

all brick building.  Class C area.  No central air...has window units.  I thinking addibg central air could raise both value and rent

DJ, Think about the vacancy factor on that one. 8% for C might be a little low... Does it need any repair or out of pocket costs?

Alright, a few things here:

  • First off, don't forget to add property tax into the mix.
  • It would be helpful to break down the building into unit size / rents. So, 750 sq. ft. 2/1 at $850/mo. Do that for all 4 units. Then go over to rentometer and see if you're getting approximately median rent for the area: https://www.rentometer.com/. If you are, great, if not, you're going to want to increase rent.
  • What is the parking situation? I can't tell you how many multifamily homes I've passed on because the parking situation was bad.
  • Look at a crime map (Zillow or Trulia, I forget which) and see if there are significant amounts of violent crime or property crime.
  • When you take a look at the insides... make sure you're dealing with hardwood or laminate. If the units have carpet work in the cost of replacing it with laminate into your budget every time a tenant turns over.

Class C areas and "central air" do NOT mix! Eventually it will get stolen, vandalized, or stripped for copper and the proceeds will fund someone's habbit. 

About Expenses:

  • Vacancies: Assume TWO units will be vacant for two months per year. I don't care what the local stats say on citydata. Just do that.
  • Upkeep: Assume you'll be paying 35% of your property income AFTER debt service and taxation. Why? 10% for property management, 20% for repairs, and 5% odd's 'n ends.
  • Utilities: Are the utilities in the property owner's name or the tenants? That's a BIG deal if it's in your name. If that's the case, look into sub-metering.

My bank will let me have more than four mortgages but they do them like that as commercial loans

You don't have anything listed for general repairs which unless they have other numbers assume at least 10%.  Also I 2nd what was said about the 8% vacancy, that is low for that area and building type.  I normally nearly double that and assume 15%.

So that is an additional 170 per month for repairs and 119 for vacancy.  Total 289.

424-289=145 per month cash flow or less than 10%

Are the units undervalued compared to the market?  Because at that price you will struggle to offer a low enough offer that will impact your cash flow significantly.

Josh here. I'm a newer investor in Atlanta, and one of the properties I own is very similar to this one. The rents are just slightly more, and I purchased the property for $73,500.

I can tell you that unless the place was built in the last 10 years, your CapEx estimate is likely too low. My property was built in 1947, and our repair bills average more in the 10-15% range (some months there is nothing, and some months there are bigger expenses).

I have a 30 year fixed loan on the place (put 25% down, financed 75%), and the total PITI is around $700 / mo. After debt service and all expenses, the property usually nets around $850 / mo.

All this said, I am not sure a $425 / mo. net on paper will give you the funds you need to pay the bills, cover actual capital expenses and repairs, and still make actual cash each month.

Finally, one item that may be missing from your expense list is lawn / tree / gutter care. I pay for this each month, to the tune of around $100.

Hope it helps. Cheers!

thank you all for the advice!  I am actually viewing the property tomorrow. I will let you know how it looks!

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