Good Deal? - Tacoma 4-plex

15 Replies

Hi everyone.  I'm in the middle of closing on what would be my first property, a 4-plex in Tacoma...but the cash flow is looking pretty tight.  I'd love to hear your thoughts on it before I close.  Inspection has been paid for and may not be able to get the appraisal fee back, but I'd rather lose those than close on a bad deal.

  • Purchase Price: $360,000
  • 4-plex w/ (3) 2-bed/1-bath units and (1) 3-bed/1-bath unit
  • Rents: 3-bed unit: $950, (2) 2-beds: $850, (1) 2-bed: $800 (month-to-month).  Total $3,450/month
  • Landlord pays water/sewer/garbage (approx. $5k/year total)
  • Property Taxes: $4,360/year
  • Property Insurance: $2,212/year (waiting for second quote, hopefully lower)
  • Maintenance/Turnover: assumed $4,000/year for all maintenance/CapX/turnover
  • Management Fee: Assumed 10%.  Current manager charges 6%.  We will likely take over management after a couple months.
  • Financing: FHA first time homebuyer loan (3.5% or possibly 5% down)

Units are not in great shape, but also not too bad, and are basically at market rent ($850 for the 2-beds, $950 for the 3-bed).  Seller agreed to repair roof, replace all water heaters, and some other minor repairs to one of the units.  The utilities are really killing the cashflow (I would charge a utility fee to tenants if possible as soon as the leases expire).  I'm also concerned that $4,000/year for all repairs, CapX, etc. might be too low.  Finally, putting only 3.5% or 5% down and paying mortgage insurance is really hurting cashflow, but I don't have the money for a 25%+ down payment.

Is this a good deal?  Does anything look out of whack?  Please let me know if there is any information you need that I missed.

Thanks!

https://www.biggerpockets.com/buy_and_hold_results...

Try this link and see if it works for you. I ran your scenario through the calculator. I don't see this being a profitable deal for you. My biggest concerns are

1) small down payment

2) high purchase price (not sure exactly where this property is in Tacoma)

3) low figures for maintenance (we are factoring 10% for maintenance and 5 for capex)

4) no vacancy factored in (unless that was part of your $4000)

My wife and I just closed on a 4-plex in Midland. We paid $320k and put 25% down. All the units are 2/1 832sf. Current rents are 800 and we will have them up to 950 after some repairs. Check my link here to our property's analysis. https://www.biggerpockets.com/buy_and_hold_results/204764.pdf

Let me know if either of these links don't work or if you have any other questions.

FYI, the breakdown of our property has a high management cost at 12% to start off because we are anticipating some significant work to get the property in the condition we want and quality tenants in place. 

where is the property located? That's a pretty high purchase price. 

A quick scan tells me that borrowing 95% of its value AND not even getting a 1% gross return per month, even if you didn't have to live in one of the units (meaning: that's at least $800/m you won't be getting!), means that it will cash flow negatively - big time!

I suspect that you will be out of pocket MUCH more than just the $800/m you would be paying if you rented there instead. To me, this only looks like a good deal for the SELLER!

I believe you're up for an extra 0.85% interest premium too, because of your low deposit.

Remember also, you already indicated that your expenses figure might not be conservative enough, so, factor that in too. Thanks for asking. All the best...

@James Lusk @Justin Peila @Brent Coombs Thanks for the feedback. I forgot to mention a couple things:

The property is located in South Tacoma near the Tacoma Mall.

I was factoring in 5% for vacancy, and it is correct that I would have to pay mortgage insurance.

I think you guys are right. Purchase price is too high and the low down payment (including the effect of mortgage insurance) is killing me. I really appreciate your insights and he extra sets of eyes!

purchase price seems high and I would recommend not purchasing a four plex which is surrounded by other 4 plexes. if it's in a residential area you should be fine, but if it's in a neighborhood of multi family, run don't walk, away.

@Catherine Barnes that's great insight. I went to a see 4 plea in south Tacoma surrounded by other four plex and there were even people making makeshift camps and living. Totally E neigbourhood , haven't seen anything like that before. But do you think all fourplexes in that are in clusters are like that?

Originally posted by @Ben Lukes :

Hi everyone.  I'm in the middle of closing on what would be my first property, a 4-plex in Tacoma...but the cash flow is looking pretty tight.  I'd love to hear your thoughts on it before I close.  Inspection has been paid for and may not be able to get the appraisal fee back, but I'd rather lose those than close on a bad deal.

  • Purchase Price: $360,000
  • 4-plex w/ (3) 2-bed/1-bath units and (1) 3-bed/1-bath unit
  • Rents: 3-bed unit: $950, (2) 2-beds: $850, (1) 2-bed: $800 (month-to-month).  Total $3,450/month
  • Landlord pays water/sewer/garbage (approx. $5k/year total)
  • Property Taxes: $4,360/year
  • Property Insurance: $2,212/year (waiting for second quote, hopefully lower)
  • Maintenance/Turnover: assumed $4,000/year for all maintenance/CapX/turnover
  • Management Fee: Assumed 10%.  Current manager charges 6%.  We will likely take over management after a couple months.
  • Financing: FHA first time homebuyer loan (3.5% or possibly 5% down)

Units are not in great shape, but also not too bad, and are basically at market rent ($850 for the 2-beds, $950 for the 3-bed).  Seller agreed to repair roof, replace all water heaters, and some other minor repairs to one of the units.  The utilities are really killing the cashflow (I would charge a utility fee to tenants if possible as soon as the leases expire).  I'm also concerned that $4,000/year for all repairs, CapX, etc. might be too low.  Finally, putting only 3.5% or 5% down and paying mortgage insurance is really hurting cashflow, but I don't have the money for a 25%+ down payment.

Is this a good deal?  Does anything look out of whack?  Please let me know if there is any information you need that I missed.

Thanks!

 If the deal otherwise make sense try negotiating 40-50k down. Communicate to the seller that if you don't buy it will be in market for another 6 months given winter is here. I had some success with extreme negotiation before. Also, I think you might have room to increase rent.

@Rudy Manna the areas with a bunch of 4 plexes are hard to rent and just all around yucky for lack of a better term. You are better off finding a triplex or duplex in an area with all houses and maybe a business or two.

I have a 4plex in S. Hill that is in a great neighborhood and I'm having trouble renting one of the units. 4 plexes are tricky to rent sometimes especially if there is no garage.

Originally posted by @Catherine Barnes :

@Rudy Manna the areas with a bunch of 4 plexes are hard to rent and just all around yucky for lack of a better term. You are better off finding a triplex or duplex in an area with all houses and maybe a business or two.

I have a 4plex in S. Hill that is in a great neighborhood and I'm having trouble renting one of the units. 4 plexes are tricky to rent sometimes especially if there is no garage.

 I am rehabbing two sfh in e tacoma which should be available in mid November(3/1 and 3/2). Generally speaking, how's the rental  market looking?

@Rudy Manna I'll give that a shot and see if it works, thank you. I'm not sure if rents can go up without putting some money into the units, but maybe.

The numbers sound a little tight regarding cash flow. Do you have the ability to raise rents or is it common for tenants to pay utilities in that area?

Single Family - you will be fine, there is still a demand but you really have to screen your tenants well. The  rental market has slowed just a little bit and prices have gone down a little according to Zillow but I haven't seen that personally. I just rent the sfr's as tenant pays all utilities so that you can budget your needed $$ better. There are still good renters out there looking to move out of apartments and into a home.

Just be aware that the area just to the West of the Tacoma Mall is a high crime and problem area.  There are a lot of apt complexes located there. (ask any Tacoma police officer that works that location)

You will be dealing with some not so ideal tenants and a lot more expenses and turnover than better areas of Tacoma. 

 

Yes, this area of Tacoma is not so savory, although there are worse areas. Rents for a decent dwelling go for about $1 sf anywhere in Tacoma slightly higher if newer or upgraded. But you will not attract the kind of long term tenants you desire. I agree it's priced 40-50k too high for the area, or to be profitable.  There are some pockets of the neighborhood that are ok, but overall, not so much. You're better off toward the north end / Fife area to service Tacoma U.W, but again, tenant turnover is higher. 

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