What would you pay for this fourplex?

Question

2007 model fourplex near Austin TX
3700sf total, all 2bed/2bath units,2 stories, carports
2.85% taxes
HOA $360/mo (community center and pool, workout room, etc)
2 units currently rented for 859 and 979, other two should be about 859 as well (979 unit is partially furnished)
Very nice area, desirable location (schools, employers, etc)
$0 needed in repairs

What is the max price you are willing to pay?  Lets assume 20% down.

Ted Harris · Answer

No one breaks it down better than Jon!!

Jon Holdman · Answer

OK, start with $859 rent per unit.  Renting furniture for $120 a month is a separate business.  Taxes in TX are high, and bugs are a problem, but you don't have heating problems or the damage inflicted by harsh winters.  Assuming tentants pay all utilities, you should be close to the 50% rule.

OTOH, it sounds like a condo, so HOA fees are always a wild card.  Personally, I loathe HOAs.  Even when I lived in Houston for many years, which is rife with HOAs, I always avoided them.

So, here's my math:

Rent: $3436
Expenses: $1718 (includes vacancy and capital)
NOI: $1718
Desired cash flow: $400
Left for payment: $1318
Max loan (and price): $219,831.35 (assumes 30 years at 7%)

That's ignoring the down payment.  Really, that's another way of saying you're making the same return on the down payment as you're paying on the loan.  (If you're willing to invest your cash for zero return, PM me, I'll be glad to help you out. :-))

So, if we put in the down payment of 20%

Down: $43,955.27
Loan: $175,865.08
Actual payment: $1054.40
Cash flow: $663.60/month
Cash flow: $7963.20/year
Cash on cash return: 18%

Looks like the right price to me.

So, tell us, what are they asking?

Sharad M. · Answer

I must be doing something wrong here, because if I use the loan amount of $175,865.08 at 7% interest for 30 years, I get an actual payment of $1,170.03.

However, if I use the actual payment of $1,054.40 to back into the loan amount, I get to $158,484.29, which is 80% of $198,105.37.

Sharad M. · Answer

Can Jon or anyone else please explain me how the Max Loan amount comes to $219,831.35? I recalculated the numbers, but I get to $198,105.37. Am I missing some cost of $21k here? Thanks in advance!  :D

Shawn Culhane · Answer

Steve, that is exactly what I have found..

Steve Babiak · Answer

Most of the 1-4 unit multis that I see from the local MLS in my area aren't even worth the time it takes for running the numbers on them.  So it doesn't surprise me to see the same thing elsewhere.

Shawn Culhane · Answer

Jeff, I am working with an investor who I thought would be interested in this, wanted to run it by a few of yall first.

Jeffrey K. · Answer

What did you offer or are you listing this?

Shawn Culhane · Answer

Thanks Jon, thats what I was looking for.  They are asking $275k.  Last purchase was in early 08, has a $325k note out on it.

Ted Harris · Answer

Amount down shouldn't factor ... assuming HOA in good standing and zero repairs, I'd consider going as high as $170k

What would you pay for this fourplex?

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