4 Plex Texas DFW Metroplex

17 Replies

Hi all looking for some feedback on a deal, would really appreciate any input for a first time house-hacker. Looking to self manage as well. Numbers as they've been given to me:

+ Asking Price:  $296,000

+ Rental information 2br/1.5ba units: $770 - Gross Rental Income = $2,310/month (for 3 units- I'd occupy the 4th)

+ Financing info: conventional, 5% down, 30 years, 4.8% - $1,475/month

+ Property Tax: ~$485/month

+ Insurance: ~$66/month (can this be right? seems low)

+ Tenants pay utilities- metered units $0

+ CapEx- $350/month

Is this even close to a good deal? What am I missing as I calculate? Thanks for your help!!!

@Scott Schober how do you plan on financing a MFH at 5%? Are you using a 3.5% FHA and just putting more down? If it's conventional it'll require 15% down as far as I know. The deal really depends on where the 4-plex is at. For a 2/1.5 to be renting out at 770/unit I'm assuming it's not in a B or better neighborhood? But you seem to plan to occupy it so maybe it is? Either way - I wouldn't run numbers excluding your unit (even if you plan to live in it) because the goal isn't to live in it forever. Run the numbers like you'd see it once you move out.

@Kenneth McKeown from my understanding any MFH 4 units or less is basically a SFH as far as loans are concerned, since I would be house hacking I could put 5% down. I could also put down 3.5% with FHA- but then I'd have PMI for the life of the note. I'm not really sure what to grade the neighborhood it's probably B-

It looks like you've put some thought into your own MFH-are you looking MLS? MFH are tough to find here, right?

@Scott Schober Are you buying off the MLS? If the tax assessor gets ahold of anything that shows the purchase price, expect your tax value to go up the next year to within a few percent of the purchase price. Not sure what city this is in, but taxes would be around $525 per month with a homestead exemption or $675 without. If you are running the numbers for the future when you move out, you need to use the higher number.

Insurance is probably too low. I would double that at least. Or better yet get a quote.

As-is it's not a great deal, but it's not bad compared to most 2-4 unit deals in DFW. At least it meets the 1% rule. I'm going to guess it's not in the best neighborhood, so you will probably not benefit from much appreciation over the years.

@Scott Schober , what area is this in? I own a fair amount of small multi-family in Tarrant and Parker counties.  The way rents have been lately, a rent of $770 on a 2-BR tells me either:

1) You're in a pretty rough area. (I just rented some newly renovated duplexes in a C-class area and had people lining up at $900/mo).

or

2) The units themselves need a lot of work.

or 

3) The units are fine, the area is OK, but the previous landlord hasn't raised rents to keep up with market.

Number 3 is ideal - you have immediate value add. Number 1 or 2 bring cautions of their own. Be sure you figure for renovation costs if the units are rough.

Good luck,

Originally posted by @Scott Schober :

@Kenneth McKeown from my understanding any MFH 4 units or less is basically a SFH as far as loans are concerned, since I would be house hacking I could put 5% down. I could also put down 3.5% with FHA- but then I'd have PMI for the life of the note. I'm not really sure what to grade the neighborhood it's probably B-

It looks like you've put some thought into your own MFH-are you looking MLS? MFH are tough to find here, right?

Here are how the percentages shake out

3.5% down if owner occupied, using FHA.

15% down if 2 unit owner occupied, Fannie.

25% down if 3-4 unit owner occupied, Fannie.

25% down if 2-4 unit investment property, Fannie.

https://www.fanniemae.com/content/eligibility_info...

I've attached the link

Stephanie

Originally posted by @Scott Schober :

Hi all looking for some feedback on a deal, would really appreciate any input for a first time house-hacker. Looking to self manage as well. Numbers as they've been given to me:

+ Asking Price:  $296,000

+ Rental information 2br/1.5ba units: $770 - Gross Rental Income = $2,310/month (for 3 units- I'd occupy the 4th)

+ Financing info: conventional, 5% down, 30 years, 4.8% - $1,475/month

+ Property Tax: ~$485/month

+ Insurance: ~$66/month (can this be right? seems low)

+ Tenants pay utilities- metered units $0

+ CapEx- $350/month

Is this even close to a good deal? What am I missing as I calculate? Thanks for your help!!!

No one has mentioned it, and maybe I am just missing it,  but do you have  any vacancy factor on your numbers?

If you don't mind living there, ie if the neighborhood is ok, (and I think most of that area is at least reasonable), I would be a little less concerned with your first deal being a great one from a return perspective.  Just living there and getting experience as a landlord will go a long way with your first rental.

I would call your insurance co for a free quote and get an idea of what it could be. Also I see you have CapEx but you don’t have a section for repair cost and vacancy

I usually do 10% rent for repair and 8% vacancy. Do you have PMI ?

Also brings up another point if the rents have the opportunity to increase if you have a good neighborhood.

Good luck!!!! Let us know how things turn out.

@Scott Schober I think $66 is low for insurance. You may want to look at the details of that plan but I would think you'd be at least in the $200ish/month range. Make sure you do your due diligence on the water heaters, A/C, refrigerators, stoves, etc. All of those things add up and will be around the same age and you will be dealing with them x4.  Good luck, I hope it works out for you! 2025 Scott will thank 2018 Scott for making great financial decisions.

heard this in a podcast. Take 35% off the gross rent for repairs, capex, vacancy, and management. then subtract PITI, HOA's, PMI, etc. Figure out what your happy with as far as whats left over. If you still have 10% of your gross rent, it's a good deal in my book.

Are you single? Aftwr you live there for a bit and get more familiar with the property, you should just pay $500/month rent to a buddy to rent a room and then rent out that 4th unit for $770, if that actually is the market rent. 

Great for you! Here's the deal - if you are going to get a 4 plex with 5% or less down, at a great rate, have them pay for the house and potentially have a room mate - that is Freaking Awesome! Good for you. Most people blow $1,000+ per month on rent and or housing anyway. So you are already ahead of the game. You need to make sure you have appropriate reserves. A 4 plex won't appreciate like sfr's in the metroplex, but big deal. You'll learn a ton. Don't think too long or you'll lose it. I went to look at a duplex that came on the market today and it was under contract in a few hours - over ask, cash. 

I always poke around Zillow, apartments.com, etc. to get an idea on market rents on nearby streets. Yours will likely go for something similar when you find new tenants.

@Andrew Herrig is right with taxes and insurance. Check the value the county auditor site has listed right now and if it's lower than your purchase price plan to adjust accordingly. I would call an insurance broker to get an idea on the quote now as an occupant and what it will look like later for the landlord policy.