Prospective fourplex analysis

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Prospective fourplex analysis

Randall George
Albuquerque, NM · Member since 2015 · 8 posts · 0 votes

Upon searching for my first fourplex and investment property in Albuquerque, NM, I came across one worth consideration. The problem I have is i'm not sure if the fourplex would be worth my time and money to renovate the interior of all four units. 

The fourplex was listed as a "turn-key" rental operation, but I am having other thoughts on this. The unit I was shown looked decent, but needs a kitchen renovation and all the flooring in the 750 sq. ft. unit needed to be replaced. Long story short, i'm looking at $5,000 in renovations for each unit with a grand total of about $20,000 for all four units. The property is listed at $169,000 which matches other similar fourplexes in the area that have recently sold. The units are rentable for the most part besides the kitchens that are original from 1978 and disgusting carpets that need to be replaced.

I would like to know if the fourplex is worth my time and money to renovate. Will interior renovations reflect on its value given it is in a "Class C" neighborhood? I would like to see the property valued closer to $200,000, but i'm not sure if updates alone would make this possible. 

On an unrelated note, the current tenants are on month to month leases. Is this better in a "Class C" neighborhood?

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  • Adam BartomeoBusiness Member
    Real Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
    10y

    Where in ABQ?

    The value of an investment property is not based on what updates it has but on the cash that it makes. To understand if it is a good price you will have to know the income and expenses. Based on this you can figure out the cap rate and determine if it is comparable to other income generating properties.

    I am not a fan of month to month. Often sellers will load there properties with month to month tenants just to get it filled or to get a higher rent. To a novice buyer they will see the income and pay based on that. It is like using spray paint to paint you car. It looks good at first but it will start peeling and chipping very quickly.

    But, sometimes it is good to have month to month. The tenants are not locked into a certain rate and you can raise the rents. This is a quick and easy way to generate more income from an under performing property.

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  • David Torres
    Full Time Investor · Albuquerque, NM · Member since 2013 · 320 posts · 154 votes
    10y

    We need some more info to help you out.  

    What are gross rents now? 

    What will gross rents be after? 

     Who pays for utilities?  

    What is the current NOi?  

    What part of town is it in?

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  • Randall George
    OP
    Albuquerque, NM · Member since 2015 · 8 posts · 0 votes
    10y

    The fourplex is located in the northeast heights of Albuquerque near Carlisle and Comanche. The units are currently rented for $525/ month. I'm thinking rental rates would not increase after updates are done given the location of the fourplex and what others in the area are being rented for. Owner pays Water/ sewage and trash removal, while tenants pay electric and gas. If all four units are rented I should have an NOI of about $400/month, although I would plan on being an owner occupant so subtract $525 from monthly income while I live there. Based on my understanding the units just need to be "rentable" especially being in a class "C" neighborhood so I may be overestimating interior updates.

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  • David Torres
    Full Time Investor · Albuquerque, NM · Member since 2013 · 320 posts · 154 votes
    10y

    While that is in the "NE Heights", that is in an area that consists mostly of multi units.  The area is experiencing some good things (La Cumbre, Skarsgard Farms, etc.)  And for the price point, you should have decent demand, as those units are close to lots of jobs.

    What is your long term goal for this property? What is your ultimate exit strategy?

    As far as improvements go, as long as it is functional, safe, and clean you should be good to go.  At that price point, people don't expect new kitchens and bathrooms with stainless appliances. 

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  • Randall George
    OP
    Albuquerque, NM · Member since 2015 · 8 posts · 0 votes
    10y

    Thanks for your input Dave. I think there will be steady demand as well since it is centrally located and somewhat close to UNM, CNM, jobs, etc. My goal is to owner occupy for now and hold long term. I haven't considered an exit strategy, but seeing as I shouldn't have a problem renting units out, it should be low risk. I would still be able to cover expenses with vacancies as well (hoping to keep vacancy minimal). 

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