How I almost bought a fourplex, but then did not.

I have been trying to buy my second property since last year. I put a fourplex under contract, and wanted to purchase it, but ultimately did not.

From much of what I read, a fourplex is the ultimate sweet-spot in Real Estate investing. A fourplex allows for some more limited privacy than a large apartment buildings, and so compared to larger apartment buildings, it is more attractive. Fourplexes provide more cash flow than duplexes, or single family homes, and also have less risk, because even if you lose a tenant, it is not as large as a hit as on the other type of small properties. It is also the largest size multi-family property you can buy, using owner-occupied financing. (Which I would have done.)

The property had many advantages that first attracted me to the property. It was one, and a half, blocs from the light-rail. It was made of an elegant Brick, (rare in Arizona,) and recently renovated. All four units were currently rented, and on all four units, the tenants paid their utilities. Most of all I liked it because it was in Tempe, a town I have a lot of respect for, and I am confident will continue to grow smart.

But there were three challenges discovered during the inspection, that combined, were deal breakers for me. The first was the electrical grid. Arizona's electricity is provided by APS, a state supported monopoly. I do not want to get too political in this post, but I am not a fan of state supported monopolies, and APS is one of the most entitled I have had personal experience with.

Digression aside, the connection from the electrical grid to the fourplex was not up to code in two problematic ways. First, the wires were exposed, uncovered. While it does not rain much in Tempe, the code requires wires to be protected. It also requires wires to be at least ten feet from the roof. The wires were a little over one foot from the room. I did not get up an measure, but they were at most eighteen inches from the roof. To have exposed wires, twelve inches, to eighteen inches, from where the water runs off the roof, made me very uncomfortable. And because it is owned by APS, the owner could not do anything to bring up to code. I did not want to have to work with an entrenched government monopoly trying to get them to follow the rules, that they had already broken, for over a decade.

Two houses over there was a property that recently had a fire. I am not trying to challenge the Oracle of Delphi, but the burnt fourplex, also made of brick, was not the omen I was looking for...

Three of the renovated units looked very nice. Without hesitation I could have lived there, and two of the tenants I would have worked very hard to keep long term. But there was one tenant who trashed the unit. The electricity had been turned off. I could smell the unit from outside on the other side of the building. The brand new water heater was trashed, and one of the new counters had been smashed as well. There was also a large dent in one of the doors. I am planning on writing about my concerns about property management companies soon, but one of my concerns was three days before we had the inspection, the property management extended that tenant for a year, so I would have to choose to evict them, or keep them for eleven months.

My third concern was termites. I have never dealt with them yet, and I might have moved forward with the property if it were just the termites. But the combination of all three led me to cancel the contract during the inspection period due to the inspection results. I am still trying to find the right property, and am considering expanding my search beyond fourplexes. So please keep me in your prayers.