4-Plex Deal Analysis. What am I missing?

Question

Hello, I am looking at fourplexes in the Kansas City, MO area. First, I want to preface this analysis by saying that I am fairly new to running reports and I have not spoken with a bank nor have I been pre-approved for any loan, still I have good credit so I made a conservative guess on the interest rate and loan points. All that being said, I' have come across a property that seems like a great deal but I want to get other opinions and see if I'm missing anything.

$145,000PURCHASE PRICE

Purchase Closing Costs

$2,000.00

Estimated Repairs

$20,000.00

Total Project Cost

$167,000.00

After Repair Value

$170,000.00

Down Payment

$7,250.00

Loan Amount

$141,882.50

Loan Points

$4,132.50

Amortized Over

30 years

Loan Interest Rate

5.400%

Monthly P&I

$796.71

Total Cash Needed

$29,250.00

Monthly income:

Rent:

$3,500.00

Other:

$0.00

Total operating expenses:

Mortgage expenses:

Vacancy:

$350.00

Repairs:

$350.00

CapEx:

$350.00

PMI:

$40.00

Garbage:

$20.00

Insurance:

$56.00

Management:

$350.00

P&I:

$796.71

Property Taxes:

Total Monthly Income:

$3,500.00

x50% for Expenses:

$1,750.00

Monthly Payment/Interest Payment:

$796.71

Total Monthly Cashflow using 50% Rule:

$953.29

I made conservative estimates on everything. With these numbers this property would give me almost $240 per month per door. So what am I missing? Should I get approved for a loan and put in an offer tomorrow?

Austin Petrie · Answer

Account Closed rents can vary a lot based on the neighborhoods so while the average for all of Kansas City might be $950, the neighborhood you are looking at could be nowhere close to that average.

Taking the zip code you were looking at (64123), rentometer shows the avg rent is $618 for a 2br. We can then look at a zip code such as 66207 which has an avg rent of $1287 for a 2br. Although the average of these 2 areas is around $950, you will clearly be getting very different rents in each of them.

The more specific an area (and similar the properties) you can look at to compare rents, the better your estimate will be. Rentometer.com is probably the minimum effort you should put into getting your estimated rents. You can also browse craigslist, hotpads, and padmapper to get a somewhat more accurate estimate of comparable rents.

Scott Schuhwerk · Answer

Andrew, these numbers look solid however you will have hard time getting this property for 5% down unless you are planning to occupy one of the 4 units, do you have a bank that will do this?

Mike D'Arrigo · Answer

Account Closed Your financing assumptions are off. Unless you're living in it, you can't get 95% financing. You're going to need to put 25% down. Your interest rate will also be closer to 6%.

Mike D'Arrigo · Answer

Account Closed numbers are only part of the picture. Where in Kansas City is it located? If you're asking if you should make an offer, I would need to know that. Depending on the location, it can be either a good deal or a terrible deal.

Account Closed · Answer

Hi all,

Apologies for the delayed response. First, I appreciate everyone's feedback. Hearing everyone's thoughts has made me look more into the numbers. I also want to say that while I am searching for a property in KC to buy, I will not be making a purchase until early next year when I move back to the area. That being said, I am fairly unfamiliar with the area (other than what I've read on BP) and I have not even toured the place nor have I had it inspected. One unit has been remodeled and looks nice and the other 3, although not remodeled recently are still in good shape.

Soo... as for location, the zip code is 64123 and it is fully occupied but the landlord will not release financials ATM. I know it was mentioned that I could not get the 3.5 down payment without living there. I intend to live in the place I purchase and have updated the report to reflect the 3 unit rent rate. Regarding the rent, I just used the average rent for 2 bedrooms in KC (from rentcafe) and decreased it by $50. Is this not a common rate to get when renting in KC?

Updated numbers:

*note I've ran this a few times so the numbers may be off again somewhere*

$145,000PURCHASE PRICE

Purchase Closing Costs

$3,000.00

Estimated Repairs

$15,000.00

Total Project Cost

$163,000.00

After Repair Value

$170,000.00

Down Payment

$79,000.00

Loan Amount

$67,320.00

Loan Points

$1,320.00

Amortized Over

30 years

Loan Interest Rate

5.400%

Monthly P&I

$378.02

Total Cash Needed

$97,000.00

Monthly income:

Rent:

$2,700.00

Other:

$0.00

Total Monthly Cashflow using 50% Rule:

$971.98

Kevin Prigge · Answer

It looks like it might be either a rough neighborhood, or adjacent to one.  Trulia Crime Map

I'm not familiar with KC, but those shades of blue in Mpls/St Paul are less desirable.

Aaron L. · Answer

Can you share the general area of the 4plex? $3500/mo rent for that purchase price sounds like it could be a pretty bad area... there are some areas of KC you may want to avoid as Lee said.

Also, I would just make sure you can actually get $900/mo in rent per unit...

Good luck!

4-Plex Deal Analysis. What am I missing?

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