Please review my 4 plex analysis

[Sean F.]

Hello BP'ers,

I've located a multi-family property not too far from me that i'm interested in. My plan is to purchase FHA and occupy one of the units. This will be my first real estate purchase. My intent is to hold the property long term and continue to buy up properties once I satisfy the 1 year OO for the FHA financing.

The 4 plex consists of four 1 bedroom 1 bathroom units all on the same floor. I realize this isn't ideal and will experience higher vacancy than normal.

Price $80,000
Loan amount $77,200 (3.5% Down payment)
Payment: $414.43 (30 year, 5%)

Monthly
Rent $2000
Expenses: $1000
NOI $1,000
Payment: $414.43
Cash flow: $585.57

I have not calculated PMI or Insurance into the numbers yet.

On the surface, the numbers seem to work. Now that this property passed the screening tool, i'm not sure where to turn.

I looked up the 2011 taxes online $6,455.42

I'm going to drive by the property today and check it out. I will check for seperate meters, roof condition, etc...

What am I leaving out? What else should I be researching on the property?

I checked public records the property last sold for $59,780.00 in 1997.

I was only able to find one 4 plex comp in a half mile radius. It's a 8 bedroom 4 bathroom and sold for $90,000 April 2012.

Thanks in advance

[Nathan Emmert]

Does that $2,000 in rents include what would be paid for your unit (i.e. $500 x 4) or is it $700 x 3?

The 50% rule should be applied to theoretical gross rents, so include what your place would rent for in the 50% expenses.

An $80,000 property that rents for $2,000 is a pretty sweet deal, I would guess it's in a rough area or rough condition. Are you sure it'll get FHA financing?

Those taxes are insanely high, as others have mentioned 50% expenses will be understated for you. The 50% rule is figuring more 5 - 10% for taxes, not 25+%.

In terms of your plan, remember you can only have 1 FHA loan. While you could leave the FHA in place and move into a new OO house, you would need to get conventional financing with 20% down on the next place. If you wanted to do FHA again, you'd have to 1st refi the property you're in. If you can buy enough equity, you might be able to do that, just wanted to let you know.

Also, why are you paying 5% on an FHA? I thought current OO rates were closer to 3.75%? There's people getting NOO in the 4 - 4.5% range...