Fourplex Multifamily Residential Deal in Texas

7 Replies

Hey bigger pockets! I have been an "investor-in-training" for almost a year now, which I am sure could just be a nice way to say that I have not pulled the trigger on buying real estate. Nonetheless, I have been listening to Josh and Brandon on the podcast and reading books whenever I can while evaluating properties along the way.

I found a fourplex with a good chance for positive cash flow. I applied the 50% rule and found that the numbers made sense, and I have been digging for detailed numbers ever since.  I intend to take a look at the property in the near future as I have already contacted a realtor.

I would be extremely grateful if you can spot check my numbers and show me where I might be off-track in my reasoning.  I should preface with the fact that insurance will be the single largest expense since this is on an island on the Gulf Coast.  I should also say that I live about 30-40 minutes from the property and intend to have the property managed for me in as many ways as are practical.

Here are the numbers:

List Price - $129,000

Revenue ($/Mo):

Monthly Rent - $2500

Assumed Average Vacancy - 10% (currently 100% occupied)

Assumed Average Rent - $2250

Expenses ($/Mo):

Homeowners Ins & Home Warranty - $597

Flood Insurance - $67

Property Tax (2.55%) - $274.13

Sewer & Trash - $150

Management Fee (12%) - $300

Landscaping Fees - $100

Financing Costs (5% Interest, 5% Down, 30-yr Fixed) - $747 (PMI=$89)

Total Expenses - $2235

Monthly Cash Flow = $2250 - $2235 = $15/Mo

Yearly Cash Flow = 185

The Cash on Cash Return is pretty low, at about 3%.

With the same numbers as above, managing the property myself to avoid the management fee would yield a 59% CoC. With management still in place and a slightly lower sales price, I'd achieve 7% CoC. I know many people consider that a paltry return; however, I'd consider the experience combined with the passive income worth the effort. Maybe someone could chime in with a suggestion about lowering the asking price to match a specific ROI. The Gross Rent Multiplier is 4.3 at the current list price, if you're into that kind of thing.

I am very excited to hear your feedback!

your insurance and warranty seems very high. You sure that's not your annual numbers on those?

You need to include repairs and capex.  Not knowing the property condition or the year it was built, my baseline is to estimate $1,500 per unit per year.

The insurance is incredibly high, but it might make sense given the location. I'd go to a few agents to bid that out.  

Your property management costs should be under 12%, and you might get a slightly better rate as a quad.

Since it's not owner occupied, you won't be able to get 95% LTV unless you get some seller financing, or if family/friend will loan the final 15%.

Originally posted by @Jordan T. :

You need to include repairs and capex.  Not knowing the property condition or the year it was built, my baseline is to estimate $1,500 per unit per year.

The insurance is incredibly high, but it might make sense given the location. I'd go to a few agents to bid that out.  

Your property management costs should be under 12%, and you might get a slightly better rate as a quad.

Since it's not owner occupied, you won't be able to get 95% LTV unless you get some seller financing, or if family/friend will loan the final 15%.

You can get conventional financing for 5% and don't have to live in I am using it for a  house i'm buying  up by UCF.

@Tom Myers Are you saying that banks are specifically offering investment property loans at 95% LTV? Or is it for a primary or second homes?

I spoke with a local banker and he said his bank's policy requires 80% LTV except for first time homebuyers. I imagine banks are allowed to go above 80% ltv, but they probably have to have a strong relationship with the person or call it a portfolio loan. I'm obviously not an expert.

A partnership might make the most sense for me at present.

Originally posted by @Jordan T. :

@Tom Myers Are you saying that banks are specifically offering investment property loans at 95% LTV? Or is it for a primary or second homes?

 It is a personal recourse loan and this will be our first home purchase. However from my understanding we can use this formula as many times as we want and then roll the current property over to a portfolio loan once there is enough equity.

I agree that insurance looks high and that you need 10% of gross revenue for repairs.

BP has a tool to analyze deals you might check out, but it is for pro members.

Also, I really liked HOLD by Gary Keller. The book is a great primer for analyzing deals.

After you rework your numbers, I'd love to see them again. Personally, as a newer investor, I'd like to be seeing $200-$400 cash flow per month.