6 unit multiplex, $300K - Next steps.

8 Replies

Hello BiggerPockets,

I'm looking for a little advice from experience multi-family buyers on a potential deal that I found. It has passed the initial filters I use (1% rule, 50% rule, major city, under $500K) and I am taking a harder look and would like to know what steps you would take at this point. Keep in mind that I have never bought property before, I am a relative new-comer to the real estate investment scene.

I have found a property on the MLS that is 5 apartments with a detached "manager's apartment" for $300K. Seller appears to be motivated as it has been on the MLS for well over a year, has made several price reductions, and claims health issues for wanting to be out of it. Property is located near a major military base.

Rents for the area, based on a quick survey of Craigslist, Padmapper, and Zillow, rents for comparable units appear to be $550 for the apartments, and around $800 for the detached apartment. W/S/G paid by landlord is also the norm for this area.

I'd like to know what your next steps would be if you decided to start due diligence on this deal. I am looking at determining the following for now, what am I missing? Any advice for a new investor on how to find some of this?:

Taxes

Vacancy Rates

Water/Gas/Garbage

Insurance

Property Management - 10%

Year Built

Major Renovations?

Accurate Rents - no, I am not just going to trust what I find on Craigslist/Padmapper/Zillow

Thank you for your input, I greatly appreciate the minds here on Bigger Pockets.

Maybe also try rentometer.com

downpayment 

renovation budget

Capex

Maintenance

Utilities ( common areas )

Net Operating Income

Mortgage Terms

______ Interest

______ Amortization

Jenkins Ramon, JMWPS Ventures, LLC | [email protected]

Hi Alex, 

I would look pretty squinty-eyed at this deal - it seems like it's less than ideal. 

The listing shows a few issues upfront, and zoning appears to be Lakewood MR2, possibly 4plex. Is listed as a 4plex on loopnet, but listing copy claims 5 units.

Serial price reductions in an overheated market, 350 plus days cdom, possible 4vs 5 unit zoning issues, sewer problems, etc. Assessor's value is just slightly less than listing price. 

That's just the beginning, and I would be surprised if that's all there was.

There's a story in there somewhere, and your job is to dig it out! 

Keep us posted.

@Doug M. is right, there's a story but I smell opportunity too.  Don't let these "red flags" scare you away from investigating it!  Who knows why these things are there, it could be that everyone's picking the low hanging fruit.  

Taxes- 

The city webpage is down (https://www.cityoflakewood.us) but with some deep digging you can usually find the tax overlay maps on the property or call the city if you know the parcel # and talk to the right people.

Vacancy Rates-

Accurate Rents - no, I am not just going to trust what I find on Craigslist/Padmapper/Zillow-

Property Management - 10%

Call up a couple of Commercial Brokers who deal in the area and ask them what the multifamily vacancy rate is. Or some of the major Agencies think: www.cbre.com have databases you can subscribe to that have that information too.  Drive the area and call for rent signs.

Water/Gas/Garbage

http://www.co.pierce.wa.us/DocumentCenter/View/847
During the Due Diligence Period make sure to ask for the utility bills for the previous 3 years.

Insurance - 

This is going to depend on what you have/want to insure, but for a smaller property I generally pencil 100/150/month

Year Built

Tax records for the property. Get the address off the listing and look at it on the Pierce County website: http://epip.co.pierce.wa.us/cfapps/atr/epip/search...

Major Renovations?

You can call the city and ask if about the permits that have been pulled.

My thoughts on the property, if it really is being sold as a 4plex (one of the rooms being decommissioned then it makes for a great House-Hack play for sure.  Occupy the house and fix the others up and re-commission the other unit, but it struck me as actually being a 6 plex.  And you fall into that really weird commercial space where it is harder to get financing for the property.  Work the our network that you've met, head down to the Lakewood Meetup tomorrow, leave work early and drive the property while you are down there.  Ask some of the Military Members at the meetup about the property, and demand for that kind of housing!

Medium logo640x400Troy Fisher, Lanika Home Inspections | [email protected] | http://www.lanikahis.com

@Jenkins Ramon - All solid suggestions, but I don't yet have the experience to estimate rehab/rennovation or CapEx, I figure that's something that I'll have to read up a lot more on to get ball-park numbers on. Big thing I guess, would be figuring out when was the last time the building was updated, and what those updates were.

@Doug M. - Oh yeah, there are a ton of red flags to even an inexperienced guy like me, but as Troy mentions below, those flags don't necessarily kill the deal, they just mean a different kind of opportunity. Good chance to bring down the price, potentially get a 4-plex for considerably cheaper.

@Troy Fisher -  First off, thanks for the tips on finding more information, can't ever have too much knowledge about a property right? The way I'm looking at this, even if the parcel is zoned for 4-plex and the property is truly a 6-plex, that presents a chance to sharply lower the asking price. I could look into converting one of the decommissioned units into an onsite coin-op laundry for additional income, or convert to rentable storage.

Unfortunately, I have to supervise a job this evening and have a prior commitment tomorrow evening, so I will have to just do my best to make it to the next meet-up, I think that they are fantastic networking events and I'm doing my best to spread the word to friends who are interested in real estate.

Alex, yes, by all means, keep evaluating it - the red flags are are often just barriers to entry that keep others away from the project. But the key is being able to evaluate it accurately, and quickly if possible.

For one like this, I would assume conservative numbers, pencil it, and if it works, start looking at the main issues.

If the owner has been trying to fix a problem on the property (sewer, units allowed, etc) there's more often that not a person in the local admin/planning dept that knows all about the history of the parcel, and an in-person visit is usually worth your time. You'd be surprised at what you hear sometimes. (Go when it's slow).

Failing that, try to talk to the owner at some point - or find other agents familiar with the listing.

Wish you the best, it's great practice, and kind of fun at times.

It could look good only for appreciating area. I would not pay more than 240K
Originally posted by @Doug M. :

Hi Alex, 

I would look pretty squinty-eyed at this deal - it seems like it's less than ideal. 

The listing shows a few issues upfront, and zoning appears to be Lakewood MR2, possibly 4plex. Is listed as a 4plex on loopnet, but listing copy claims 5 units.

Serial price reductions in an overheated market, 350 plus days cdom, possible 4vs 5 unit zoning issues, sewer problems, etc. Assessor's value is just slightly less than listing price. 

That's just the beginning, and I would be surprised if that's all there was.

There's a story in there somewhere, and your job is to dig it out! 

Keep us posted.

 These are sound concerns, and each should merit review. On the opposite side of the spectrum though the 4 Vs 5 units can quite possibly turn out t be a financing blessing.

As for the story, yeah the story. Story properties always seem to make for the best investments, and when they don't you're often entertained by someones wild fairy tale. Listen to the story carefully, and if it isn't in black and white were you can read it too then chances are it was crafted to entice and lure you in as a character to the story. Don't become a character in someone else's story.

@Doug M. - I'm currently in no real hurry to buy, and while I'm in a bit of a holding pattern, I figure the best thing I can do is evaluate as many properties as I can so that when I'm more ready to make my move, I'll be ready. I'll be taking your suggestion and visiting Lakewood City soon enough to get a better sense for what's going on with this property.

@Jane A. - Heh, that's what I figured too. What with the military draw down reducing housing demand in the area, I might be able to jump in on this for a heavy discount, especially if the seller is highly motivated. Odds are, I probably won't put in a real offer anyways, but it's good to practice as much as I can.

@Christopher Telles - For sure, I definitely want to hear the seller's story, if nothing else than for the entertainment factor. And I can actually get on-board with the idea of buying it as a 4-plex. As I mentioned above, I would look into converting the 2 decommissioned units into storage and coin-op laundry to boost monthly income a bit.