A 4-plex and two Duplexes

6 Replies

I found a potential off-market deal, where a couple who recently retired has a 4-plex and two duplexes they're considering selling. They gave me an asking price for each, but they sound like they just pulled the numbers out of the air without doing much research. Based on comparable sales and discounting for potential repairs, I came up with what I think is a fair price. (I haven't been in the buildings yet). These are all in central New Jersey, less than a mile from each other, in a solid B market. The 4-plex and one duplex have asphalt shingle roofs which look like they're approaching the end of their useful life, so I've included enough capex to be able to replace them within 3 years of purchase. The second duplex has a slate roof and older siding (the other two have vinyl), so I've raised up the capex on that one a little more.

I'm hoping to get some opinions on these numbers. Personally I think the cashflow is great, but these three buildings would only be my second acquisition. I know higher ROI is always better, but should I be happy with 8% in a competitive B market? I need to find partern(s) to fund the down payments, so I'll have to split the cashflow. What is a standard split? I would be doing all the acquisition and management work, and would require at least 51% to maintain control over the partnership. I'm open to a "50/50" split, but should I be going for a split more in my favor?

Property4-PlexDuplex 1Duplex 2Total
Asking Price$800,000.00$479,000.00$479,000.00$1,758,000.00
Offer Price$760,000.00$376,000.00$365,000.00$1,501,000.00
Monthly Gross Income$7,200.00$3,900.00$3,650.00$14,750.00
Monthly Operating Expenses$3,081.67$1,719.83$1,679.83$6,481.33
Monthly NOI$4,118.33$2,180.17$1,970.17$8,268.67
Monthly Mortgage Payment-$2,717.14-$1,346.42-$1,307.15-$5,370.71
Monthly Cashflow$1,401.20$833.75$663.01$2,897.96
Annual Cashflow$16,814.36$10,004.96$7,956.15$34,775.47
Total Cash$199,880.00$101,520.00$98,550.00$399,950.00
Cash-on-Cash ROI8.41%9.86%8.07%8.69%

There is a 3 family for sale on 41 Lincoln ave for 469,900 right now, it seems it depends on what area of town they are in too, just so you can gauge their asking price, they seem to be a little high. as @Buddy Holmes asked, what is included in your operating expenses ?

Here is a breakdown of what was included in the operating expenses.

. 4-Plex Duplex 1Duplex 2
Insurance $ 83.33 $125.00$125.00
Property Taxes $ 1,458.33 $920.83$920.83
Water/Sewer $ 100.00 $50.00$50.00
Vacancy $ 288.00 $195.00$182.50
Repairs & Maint. $ 216.00 $117.00$109.50
CapEx $ 432.00 $195.00$182.50
Property Management $ 504.00 $117.00$109.50
Total Operating Expenses $ 3,081.67 $1,719.83$1,679.83

I need to get an insurance quote. I was playing with those numbers which is why they're higher for the duplexes than the 4-plex. I pay about $1000 a year for the insurance on the duplex I live in, but how much should I budget for an investment property? 

Looks like you have it covered in the operating expenses. I have properties in PA, mix of - SFH, DUPLEX, 3 FAMILY, the average for a Commercial Insurance policy is about 1300 for them, so 1000 is close but would call an insurance co. just to make sure, especially here in NJ. i do think the asking price for the properties is off, even though it will make you money. If the area has a cap rate of 10% ( even though cap rate does not usually apply to properties like these) . the 4 plex has a NOI of $4118.33/ m or $49,419.976/ yr, the purchase price at 10% cap would be about $500,000 OR $617,749 @ 8% cap. @ 10 CAP duplex 1 - $261,620, duplex 2 - $236,420. Purchase Price = NOI / CAP. the only way to find out the cap rate is to determine how commercial properties are selling, which you can figure or by asking other investors and Realtors. at their price they are saying that the area performs at about 6% cap rate, which indicates a steady income and not a lot of turnovers.