My First 4-Plex Deal

7 Replies

What would you expect to pay for a 4- Plex near a college campus that has 4 units, each 2 bed and 1 1/2 baths? Each unit rents for $750.00 a month and it doesn't require much maintenance as it is a newer building. Expenses run around 16% of the rental income and the units have never been vacant in the past. I want to put in an offer but I would hate to pay too much. Also, if you were selling a property like this what would you expect to sell it for? I want a good deal but I also want to understand what the seller might be expecting.

Thanks,

David

@David Cochran

Where did you get the 16% for expenses of gross income?  That number is easily going to be 50% or more, including mortgage pmt. Just because they haven't been vacant in the past doesn't mean they will be filled until the end of time. On the purchase price, I would say some where around 40-50k/unit.  You definitely need to do some research on the rents and make sure that's accurate for the area and what this property offers, not just that it's a 2/1.5. 

Hope that gives you some direction. 

Price or terms, would need some ballpark numbers, such as asking price and days on market.

The way I analyze my properties is to back into your payment. So, I first take my income and from that I subtract all expenses (taxes, insurance, utilities, management, vacancy, etc) the amount I have left each month is what I can afford my mortgage payment to be. So I use a mortgage calculator to figure out my offer. Say after all expenses are paid I have $500 to pay a mortgage. A $500 a month payment on 20 year loan at 5.5% interest means you can pay $72,686 for the property. Doing it this way assures expenses are covered and you never pay more than the income can support. You have to know how to use a mortgage calculator though...

@Logan Hassinger, no I calculate my per door income as an expense. So, say I'm buying a 4 plex and I want to put in my pocket $100 per door each month, I calculate a $400 expense each month for that. 

Where are you in this process?  Have you identified a property?  How do you not have an asking price?

Start with comparables.  Your seller will probably have a number based on this.  In a college town you should have a bunch of recent sales to look at with a standard configuration like 2/1.5.

If all similar 4-plexes are selling pretty consistently at a consistent price, the operating numbers won't matter to the seller even if they're lousy.

@Logan Hassinger  A lot of investors love college towns because a university, unlike private industry, has a lot more stability providing a dedicated, transient, and educated tenant pool.  It's entirely possible that these units do stay full until the end of time.  Or at least longer than we'll be around.

This is also why a 4-plex near a college might not make any sense from a numbers perspective.  They sure don't here.

Hope this helps.

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