4plex Offer- Nervous about the numbers. What are your thoughts??

Question

Property

The building has three 2/1 units leased at $1,146 (Rent & storage/garage) a month. The other unit is ready for move-in. The location is downtown Westminster CO, new residential development and commercial real estate are on the rise. It’s 5 minutes to highway 36, and 20 minutes from Boulder, CO (College Town).

RentoMeter says I can get $1,300 a month, I looked at other similar properties in that area, and they are much newer with amenities.

Rental Income

The market may crash, we don’t know how bad just yet, but it’s going to take a hit. However, multi-family homes that are 4+units are they more likely to keep most of their value? One primary concern is how bad will unemployment be, and how does that affect getting tenets that can pay?

Is it smart to purchase now? What happens in June, July, and August when we ALL find out who can afford their rent? I would hate to buy this property only to find out that these tenants can’t pay rent because they lost their job.

Lastly, the building was build in 1962, how do I find out about lead paint and asbestos?

Loan

Listed 675K

Offer 630K

Target purchase price-650K

Down payment 10%

Rate of 2.6%

Monthly Cash Flow $1,472 /mo

Income $5,000 /mo

Expenses $3,527 /mo

CoC ROI 34.88%

Purchase Cap 8.21%

Apartments in this area that rent of $1,300.00 Look like this.

Tyler Labelle · Answer

I updated my proforma based on what others have said and my personal opinion on that you will need 25% down and rate probably closer to 4.5% or higher. whoever is quoting you clearly doesn't do investments. Don't get me wrong, there are people that will lend on something like that with 10% down but it wont be at 2.75%. Admittedly I don't know the area but it sounds like Steve does and he's not jumping to buy it so that should tell you something. since he knows the market and the area you might be smart to get with him on this if you want to speculate on a 675k purchase.

https://www.biggerpockets.com/analysis/rentals/8f5809bb-be22-4f02-aa7d-f1b1a9c8d807

Tchaka Owen · Answer

@Christopher B Shires - the numbers seem a bit aggressive. Are you going to manage it? If so, fine....if not, you should set aside 8-10% for Management. Minimum 5% Vacancy and since this isn't a new building, I recommend at least 7% each for Repairs and CapEx. Then add Taxes and Insurance. Subtract that total from Income (which is $4600, not $5000) and what's left goes to cover your mortgage payment - which is at 4% minimum. You're not going to get 2.6% even if you live in one unit.

Like @Tyler Labelle, I'm not a fan. FYI, even giving rental credit for the 4th unit, I'm getting an estimated Purchase CAP of 5.80%, not 8.21%. My guess is you haven't subtracted all expenses.

Tyler Labelle · Answer

https://www.biggerpockets.com/...

These numbers are assuming some how you can get 10% down but you will likely need to put 25%. and that you can raise the rents to what you said. personally I would stay clear of this property but let's see what others say.

Tyler Labelle · Answer

If you are house hacking that changes everything. But now your rental income will only be around 3450$ a month and not 4600$ updated proforma with new information.

https://www.biggerpockets.com/analysis/rentals/8f5809bb-be22-4f02-aa7d-f1b1a9c8d807

Bill Goodland · Answer

@Christopher B Shires if you can qualify for the mortgage, and the gross rents from the other units will cover the PITI while you live there for free, I think it’s hard to go wrong

Christopher B Shires · Answer

@Bill Goodland Yes, I would be house hacking.

Craig Curelop · Answer

@Christopher B Shires - These numbers seem quite optimistic. I think the odds of you actually achieving your projections are well under 10%.

As a Denver investor along the US-36 corridor myself, your rent projections seem high and your monthly obligation seems low. I am not sure if you are properly accounting for property management, vacancy, etc.?

If you are a new investor, I would steer clear of this one. It seems like there may be a lot of ways for you to mess up. If you don't have a large reserve, you could end up regretting this purchase big time.

Steve K. · Answer

I'm familiar with that building and also own a few similar quads not too far away. As far as rents go; rentometer is definitely pulling comps from nicer blocks/more updated buildings. $1,250 is the very upper end of what I would expect without updating the units. It will be much hard to fill units at that rate, and if you do find anyone, those tenants will quickly realize they have better options for the same rent amount elsewhere, so you'll have high turnover which is number one profit killer IME. Personally I'd keep rents around $1,150 to reduce turnover. The current condition and finishes are standard for the market so anyone looking for a higher-end unit is going to be looking on a different block. There are some other small value add plays I saw with that building though, such as converting the laundry room to coin-operated units and adding more storage/converting the garage. I'd be happy to give you more insight on that specific building.

As far as the Denver/Westminster market as a whole goes, I'm still bullish on it. My Chrystal ball is as cloudy as yours is for the next few months, but long term I believe this area will continue to have strong fundamentals. My plan is to continue analyzing properties based on their individual merits and not get distracted by a macro-economics thesis that has a 50/50 chance of being accurate. I'm still looking to buy properties that meet my criteria in the Denver area. I'm not that keen on this specific sub-market/micro market/street location however. That exact area may come along eventually, but it's still rough currently. You're right though, there is a lot of new development around the station as well as all along the Federal corridor. The broader area seems to be starting to transition. One issue is the schools are terrible (but getting better, especially in just the past couple years).

As far as lead and asbestos goes, it's possible there is some in the building due to its age, but that wouldn't be a deal breaker for me. I didn't see any chipping paint, asbestos ceiling tiles falling down (ceilings are sheet rock) or 9x9 flooring tiles in poor condition that would cause anyone harm. If there is any asbestos, you would just want to be sure it stays encapsulated so nobody can inhale it. For lead, you'd want to keep the paint in good condition just in case but with the windows all being either vinyl or aluminum and the interior trim being more recent than 1978, I wouldn't expect lead paint to be a concern. A good inspector would be able to tell you for certain if either lead or asbestos is something to worry about with this property. Due to the building's age, being built before 1978, your lease would need to include a lead paint disclosure according to federal law: https://eforms.com/lead-based-...

10% down, 2.6% interest rate? I'd like to know where you're finding that! Best I've found is 25% down, rates in the 4's.

Bill Goodland · Answer

@Christopher B Shires are you owner occupying to househack?

Christopher B Shires · Answer

@Tyler Labelle I got my letter yesterday with rate and down payment. I have to show 3 months mortgage in the bank.

4plex Offer- Nervous about the numbers. What are your thoughts??

4plex Offer- Nervous about the numbers. What are your thoughts??

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