Medina, OH · Member since 2016 · 24 posts · 7 votes
Hello,
I am looking for your thoughts on a 4-plex deal in Medina, Ohio 44215. Each unit 2 bed 1 bath. Owner is asking 235k and it was built in 1995. 2units are long-term renters at $575/mon (since 2010 and 2004), both mon-to-mon) and one unit is a shorter term renter at $595/mon. Monthly operating expenses including $200/mon long term replacement reserve is $1006 (owner pays trash/water/sewer/landscaping). The deal looks more reasonable if I can get $625/mon per unit and get the units for $200k. Probably needs a new roof but otherwise no major repairs.
1) Can anyone share successful negotiation strategies for lowering the price of the units? On the market for 269 days at same price.
2) What is a reasonable and ethical way to increase the rents, especially for long-term renters?
3) It seems banks want at least 25% down for a 4-plex. Does this sound right?
What kind of financing terms are you considering? Either way, IMO the market will support (or disprove) purchase price. Depending on recent sales comps and rent comps, you can use these as negotiating tactics to justify a lower price point. Make sure to subtract any and all rehab issues...especially the roof. Get a contractor in there asap to check the integrity of the roof and subtract from purchase price. No sense in walking into an investment with possible deferred maintenance issues that may cost you more in the long run.
As far as rent increases, again use local rent comps for your market. Even go as far as checking with local property management companies. Many times they will be aware of market rent fluctuations. If it is time for an increase, use small increments (perhaps 10% per year) so as not to shock/anger tenants.
When it comes to investment properties, it is very normal for a bank to want 20-25% down payment. Now a days, banks want investors to have some skin in the game to show that you are serious about a property. There are ways around this...such as a FHA loan or if it needs rehab work, FHA has a 203k rehab loan. These only require 3.5% down payment, however you may have to live in one of the units for a year to satisfy loan guidelines. Just thoughts though...Good Luck.
@Nathan Klettlinger 2) If these long term tenants are paying under market, they know it. The tenants of my 4-plex got a personal 'hello' and a written letter from me, the day the sale closed. They were all on month-to-month leases. The letter told them of the rent increase that would be in affect 2mo in the future. They could sign a new lease with me, at the higher rent, or move out. They all resigned, even the women who was an 11 year tenant (and no rent increase for 5 years.) We just celebrated our one year ownership and will be raising the rents, as market rents have increased and demand has increased. You have something better: 2 bedroom units. These are even more desirable so your future will get better. But it must cash flow from day 1.
Spend a weekend visiting other units for rent in your area to determine if your units are priced low or high, also look on craigslist rental section to get a feel for rents. You will become a market area rental specialist very quickly.
:-)
Also look to see if there is any "hidden value" in the property you are interested in that hasn't been taken advantage of.
Your agent should be able to provide comps to show what the price of the unit should be. Based on the time it has been on market it is over priced the problem is the seller does not care. Just make the offer at the price you want to pay and see what happens.
As far as rents are concerned providing you know the market you should raise them all immediately to market rate. No point in paying your tenants to live in your units. They will find out they can not likely move to anywhere cheaper. I would be more concerned about raising the rent of the short term tenant than the long term ones. Long term tenants have been paying under market for a long time and they well know it.
The short term tenant is closer to market so the rise is not too bad. Raise them all directly to $625.
@Nathan Klettlinger the rents sound a little low. I would recommend what @Steve Jones said about looking to find out what the market rents are going for.