Would you do it? I’m looking at a 4plex in south Florida with 100% occupancy, in mid $500k, very high property tax. After running the number, I came up with $300/mo CF. Is it worth it?
$300 per unit, or for the total complex? Per unit, then probably, for the complex, then no (but those are just my criteria ;-) Ultimately, in the words that drive so many people crazy, "It depends"
First I would make sure that your number are pretty tight and include the extra set asides that they discuss using the REI Calculators. Make sure the your ROE meets your plans and such.
Assuming the $300/ unit, the main things that would cause me any hesitation, would be how much you are going to have to leverage, the expected vacancy rates, and are you going to end up underwater (literally if you are in hurricane and flood spaces, or figuratively if it is likely to be impacted by a downturn in the economy).
@Kent Clawson thank you. $300 for entire 4plex. I’m putting away all funds $450 for capex, $450 for managing ( not sure how I’m gonna do it since I’m OOS), $250 for repairs, $300 for utilities for certain units.
@Kent Clawson I paused when I looked at the county records. It’s appraised for almost half the asking price. And as I understand the new tax will be 2% of the asking price.
In case you don't have experience with property in South Florida, take into consideration the property insurance. You will probably need hazard, wind, and flood. They can vary WILDLY year to year. My policy for wind is doubling or tripling this year. That alone could make your $300 a month cash flow go away very quickly. I would make sure you understand those numbers well before pulling the trigger.
That said, a good rule of thumb I've seen is $100 minimum per door. Even $100 a month is pretty low in my opinion, but that is my threshold.
@Adam Harper , so does that 2% work in your favor, or against it? It seems pretty steep unless you are really connected to some history in the area.
Full disclosure, I have not got into MF yet, so I could be talking completely out my butt, but unless there is reason to believe that the area will draw some significant appreciation, $300/ month seems like a really tight margin unless you are contributing, but that is just me thinking that I would want to see at least $150-$200/ unit.
@Daniel Winsor thank you. I did include $250/mo for insurance.
@Kent Clawson 2% tax of mid $500k is $11k a year. Its 2018 tax is shown $7k. It’s a big jump.
OUCH!! There goes your $300/ month plus
@Kent Clawson I did factor the estimate tax in and that’s how I came out with $300/mo CF.
@Adam Harper Make sure your tax bill estimate is correct. Can you call the county and ask them for an estimate? If not, the title company should be able get this information since this number needs to go on your HUD (assuming you're doing conv financing). Would hate to see you pass on the deal if the tax bill is way over actual. With that said, for only $300 CF on a mid-$500k building, I would pass. There are better deals out there for over $500K that would give more than $300 CF. Think about it....your expenses - including mortgage debt are eating up almost all of your income. Why would you do this deal?
@Adam Harper if your down-payment is 30% and your numbers are right, that mean's you're cash flowing at 2.4% CoC. You can find a money market account that will net you that type of return with no headaches, so I would pass.
If you're living in it, with a low down-payment and still collecting $3,600 per year, I'd consider it. But without all the information, it's not a question anyone can really answer.
@Scott Wolf, I reran the numbers. It got worse.