Fourplex for $98k, Independence MO, tell me if this is a deal!?!?

10 Replies

Okay, i need your help BP!  I have an older fourplex under contract  in Independence Missouri for 98k. I've done my due diligence and below are the actual numbers, or averages.

Monthly expenses:

96Ins

141tax

178Management

18trash

95water

70gas

178vacancy

178Maint

954total

Owner pays for water and sewer, and also gas for 1 water heater which is shared by upstairs two units

Monthly Income:

Unit 1.   600

Unit 2.   400

Unit 3.   400

Unit 4.   375

Total 1775

The way I have structured the deal is to close with only $10,000 down that I'm bringing to the table! I have a JV 50 50% partnership where the partner is bringing 50000 to the table. I also have a moneylender which I am borrowing 40,000 from with an interest only loan at 6.25%, making monthly payments of 208 per month. See numbers below. Also, as the active property manager, I will be receiving 10% management 178 per month off the top. The interest only loan I can pay down any time, and also down the road I can buy out the partner.

1775Gross Income

821Gross - Expenses

410.5 net income split with partner

208 interest-only mortg payment

202.5Cashflow

178 10% Mgmt.

380.5 CF + Mgmt

Questions, what are your thoughts on interest-only loans? I am at still my early investing stages and trying to build up cash flow for additional down payment as quickly as possible. 

Thoughts or advice on how to structure the deal? 

Thoughts on the numbers? Is this a good deal?

Additional Quick Info, the the owners advertised as fully rented and long-term tenants...  I am a little concerned because 

Number 1- I learned I will have  a vacancy of one of the $400 units  immediately.  trouble tenant is moving out before closing. Quick funny story, when viewing the apartment the tenant was supposed to have one dog. We saw the apartment and it had 1 dog, several kittens(3 that we saw) and a cage of about seven or eight quail, or prairie chickens... LOL the place smelled like a BARNYARD, poop and pee. Haha

Number two, the $600 tenant came up to us when we were viewing property and said she was looking to move out and had already given notice. Asked if we had any other property for rent. LOL vacancy number two.

Gotta Love vacancies..., but right off that's $1,000 income of the 1775 that we are losing, and also of course turnover/make-ready costs.

Shameless tags for quick attention: Independence, Missouri Kansas City Oak Grove Grain Valley Blue Springs Lee's Summit Midwest multi-family fourplex

I think it's a good not great deal. IMO it would be nice to get it for about 10k less. I personally don't have an issue with the interest only loan if it appraises well. If it appraises for 130 or so I just wait and find a lender to cash out later. Independence might have more turnover. Either way, it's not bad.

Yes ^Reggie  that is exactly what i Wanted to offer , about 88k, but other offers started coming in, or so the seller agent said.  I'm still a little leary because I know from experience that these older properties from early 1900s have a lot of deferred maintenance... especially plumbing issues on converted residences like this in Independence. At least it had a brand new roof!!!

I definitely know there's going to be higher turnover in Independence(from experience), so I'm glad I factored the 10% management fee in for myself.  I thought that was smart anyways!!! 

Speaking with relation to my personal residence....I thought interest only loans were terrific until the housing crash when I found out I actually owed more than what the house was worth limiting my options (including relocation for job prospects).

These days, I don't touch them.

Yes I have used private money with regular amortization and payments with my previous properties, but this private lender offered the interest only loan, which I've never used before. Of course I can pay down the loan on the 40k at any time as well. 

Essentially the interest costs are about $50 per month, per each $10,000 increment.

@Aaron Brown if it's not up to speed with the inspection maybe price can be renegotiated to reflect any capex.

I am buying a duplex and have and inspection tomorrow. I will have no problem asking for a price reduction if capex expenditures are nearing.

Are all the units the same floor plan? If so you have a nice opportunity for some value add! A year ago I bought an apt building with rents from 475 to 650. Today I have all but 2 units filled with good tenants at 625. The last two units were good inherited tenants that I didn't raise rent on because I they have lived there a long time. I bought it for 275k and it is now valued at 450k and I will refinance it and make a nice chunk! That would be my strategy will your fourplex.

Originally posted by @Trevor Tilton :

Are all the units the same floor plan? If so you have a nice opportunity for some value add! A year ago I bought an apt building with rents from 475 to 650. Today I have all but 2 units filled with good tenants at 625. The last two units were good inherited tenants that I didn't raise rent on because I they have lived there a long time. I bought it for 275k and it is now valued at 450k and I will refinance it and make a nice chunk! That would be my strategy will your fourplex.

Hi Trevor,

Unfortunately, they are not the same floor plan. This is an older converted residence 4-Plex, and upon first look it looks like the rents are tapped out as high as market value will bring. I'd love to raise the rents, but I don't think that would be a good idea as it might bring higher turnover and vacancy. 

One thought I am considering though is charging an additional fee to recoup some of the utility costs for water paid by owner. Have you heard of anyone doing this before? I'd love to meet with you or speak with you sometime Trevor to hear about your apartment building Independence!

@Aaron Brown On converted SFRs with all utilities on one account, I charge a flat utility fee per unit based on sqft and number of tenants.

Never charged back water, alone, on converted SFRs, but Brandon Turner talks about doing it successfully it in the Washington sticks. Maybe there wouldn't be any issues here, either.

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