Hi Bigger pockets community. I'm about to close my first property , is a 4-plex in Tacoma/puyallup area. I'm concerned if the cash flow is actually good, any help would be very much appreciate.
One of the unit is currently vacant and the realtor mentioned this was to allow VA financing
- Purchase Price: $700,000
- 4-plex w/ (4)4-bed/2-bath units each one 1500 sq ft
- Rents: 1,250, 1300, 1650 , 1 vacant hoping to get: 1650 . Total $5,850/month
- Landlord pays water/sewer/garbage (approx. $4,219 year total)
- Property Taxes: $8,900/year
- Property Insurance: $2,700/year
- Maintenance/Turnover: assumed $4,000/year for all maintenance/CapX/turnover
- Management Fee: 8% property managment fee
- Financing: 25% down payment, interest rate 4.6% 30 years fixed
The property has access to the Puyallup School District, the units are in good shape, the one vacant unit has been recently remodeled.
Is this a good deal? Any advice would be welcomed
Please let me know if there is any information you need that I missed.
My calculations put it at about $500/month cashflow. My personal goal is for $200/unit, but that is self-managed. So, from that perspective, it is a safe investment. However, I'm showing a 3% Cash on cash return, and a CAP rate under 6%. These numbers are not good at all.
For my numbers, I bumped up your maint/CapX/Turnover to about 7k... which I think is more realistic, but if I use your number it's still a Cash on cash return of only 5%... still not great.
One thing I'd recommend is nailing down the rental rates for this building. I'm working on buying a 4plex that has awesome cashflow, but I've done my own market research and determined that the seller has the rents above market. Maybe he can keep good tenants in at that rate, but I can't count on it, so I'm basing my purchase on lower numbers. If I'm wrong, and it does make that money, I'll be fine with that. So, it seams to me that there is a bit jump between the 1250 rent ant 1650. You need to find out what the market will handle. If the market is 1650.... then this is a great deal. Get the rents of the other units up to 1650 and you'll be 8% Cash on Cash, which is a bare minimum in my opinion. However, if you misjudged, and the 1650 is a fluke and you can only get 1450 for the vacant unit....
So... nail down the rents, and the returns on your money that you need, and go from there. If these are good returns for your area, go for it.
good school district and great unit size - 4 bedrooms are always in demand but what is the area/ address? that will make a difference.
Just a thought to throw out there- but I feel like most people who want a 4/2 w/ 1500 sq ft would rather try and have their own house instead of the apartment feel....? But maybe that size rental is typical over there?
@Eduardo Bravo ortiz - I think you are underestimating your Maintenance/CapX/Vacancy expenses-reserves.
If you are this close to buying, I would really drill down. What is a new roof going to cost you? Estimate that, then divide by about 20yrs. and that's how much you should be socking away just for that. Repeat with calculations for siding, flooring, carpet, tile, paint, windows, appliances. I believe that you'll quickly find that just CapX reserves alone are running you into the $4k-$6k range annually.
I would also assume bump up the vacancy reserve. Remember that if just one of the units sits vacant for 1 month out of the year, that's 2.01%. I would assume you'll be turning a unit at least once per year until you've had it for a couple of years and can stabilize things.
For maintenance, I usually budget 5% of gross rents if it has been recently renovated, 10% if I think there is deferred maintenance that'll need to be cleaned up quickly.
For starters, well done for having $175k cash to play with!
Now, go find something that'll give you MUCH better returns than the 3-5% that this one shows!
eg. Check out @Justin Peila's responses in this thread (about getting 1% gross rents per month in Tacoma) a month ago:- https://www.biggerpockets.com/forums/311/topics/35...
@Sam LLoyd Thanks for all the info, From looking at craigslist comparable rents and also after running a craigslist Ad just to feel the waters, I believe 1650 is in the ballpark especially for the new remodeled one. For the ones that are on the 1250/1350 range I would probably have to do some remodeling but I believe I can get them to rent for $1650 after that. So I do se a path for $1650 per unit (probably will take 4-6 months to get there). On the maint/capx/Turnover you are right, your number is more realistic.
I have the same goal 200/unit would make very happy. Having a hard time finding some of those. All bigger pockets folks are looking for them ;) . Sam what areas are you looking at?
@Catherine Barnes The zip code is 98443 , seems borderling between b-/c+ area. Would love to know your thougths.
@Cailyn Aune That is one of my main concerns, especially this area are mostly big SFH. Seller Agent claims that the last property they rented like a month ago, took only one week to rent, but I would have to double check. I'm still waiting for the rental ledger
@Alex Chin Agreed the Maintenance/CapX/Vacancy I put wasn't realistic. I will check out the roof prices. Still learning how to properly calculate all the expenses. This was really helpful. Alex beyond the hilltop/tacoma area, what areas do you see with good potential? I'm from the sf bay area and its impossible to find any cash flowing properties these days over here.
@Brent Coombs Thanks Breat! Trying to put that money into good use! For Justin's thread seems most of the deals 1% are foreclosures and auctions. Not sure If I'm ready for that big jump. Also the fact that I'm a out of state investors makes it a bit hard. This particular property I had the chance to look it first hand, last week that I was in the Seattle area, and it was the only one which I would actually wouldn't mind living on it (if was a tacoma resident)
i rent properties around here and a good yardstick for renting is that they rent for about $1.00 per square foot. So if it's 1500 square feet, rental price will be close to $1500 unless there is something really extraordinary. With a 4 bedroom $1650 is within the norms because there are lots of military families here looking for the 4 bedrooms.
I drive by that property routinely. The roofs don't appear to be in very good shape. I'd plan on replacing them sooner than later. You're probably looking at another $15-20K in new roofs alone.
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