I've made an offer on my first 4-plex. What do you think?

Question

Howdy Everyone,

I've made an offer on my first rental property and I'd love to get the take of the BP community. Details below:

Property Type: 4plex

Neighborhood Rating: Small Town B, Maybe B-

Asking Price: $180k

Offer: $160k

Gross Monthly Rents: $2,200

25% Down: $40,000

Monthly Debt Service: $590

Annual Expenses (sent by seller)

Maintenance - $1000 (seems light)

Taxes - $1700

Insurance - $525

Garbage - $675

Utilities: $1,200

City Sewer & Water: $1,620

Property Management: $2,640 (estimated @10% of gross rents)

Total: $9,360

What does everyone think?

Thank you,

Jon

Kevin Hurtuk · Answer

I normally run deals assuming 15-20% for maintenance and cap ex combined.  Given that assumption you're at roughly $115 per unit of positive cash flow which is pretty darn good!  Also I factor in 5% for vacancies.  If I was going to make an offer on this place priced at 180K I'd probably offer slightly less than what you are but that's just me.

Brian Turnbough · Answer

On expenses, maintenance seems low. Did they mow the lawn or do their own landscaping? A cheap lawn service company would be at least $50 every two weeks, that's $50x26(every two weeks)=$1300 a year on lawn maintenance. Also, is that insurance for 6 month premium or the full 12? It should be closer to taxes. Are the units sub metered for elect? If not, I would estimate $100/unit/month. So $400x12 months=$4800/year.

Other than that price looks good.

Brian Turnbough · Answer

Sorry Jon, I didn't mean I thought that was a good deal. I was saying the price looked good. Where I'm at in west Texas there is a 4 plex for sale at 320k. You couldn't even get the rents to cover the mortgage there.

I would probably double the expenses on the bottom at least for the first year. You never know what can come up. If the numbers still work then it's a good deal.

Jon Fields · Answer

Thanks for the feedback guys.

Brian - All expenses listed are annualized according to the seller. They have a guy that mows the lawns but it isnt much real estate that is green. Most of the landscaping is drought resistant and rock.

The units are all sub metered

This is my first purchase so I'm glad to see that the numbers are looking ok. I'm trying to beat it into my own head is that you "make money when you buy" but its great to get another set of eyes on it.

I've made an offer on my first 4-plex. What do you think?

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