Looking at a Quad in Georgia

[Darryl Blalock]

Hi Guys, I'm new to this and could really use some expert advice. I also posted this in the multi-family forum - just trying to cast a wide net and learn all I can.

We found an owner-occupied quad listed at $275K. Nice clean building in a nice clean area. The other 3 units have long-term renters, and a new tenant is moving in to the previous owner unit. All are month-to-month tenants. All electric units, tenants pay own utilities. Trash is included in property taxes. All appliances are less than 8 years old, but the roof will need replacing in 7-8 years. Last year's rents were $21,300. I'm planning on using a property management service.

Got preapproved for a 4.125%, 30 yr conventional with 25% down. I don't have that kind of liquid cash, so I'll have to take out an equity loan on my primary residence. Not excited.

I ran the BP calculator, plugging in numbers as best I know, and my Cap Rate is about 6.75%. My CoC ROI is a little over 9%.

My lender seems to think that the unit is a little undervalued (elderly widow seller- wants to get out and travel), and that I may be able to cash-out refi in 6-12 months, recouping my initial investment. Is this reasonable?

We did submit an offer at $250K with a couple of escape hatches written in- waiting on word.

OK - what am I overlooking? Is this feeling I have just first-time jitters, or is there something that's gonna bite me? I really want to do the first one right.

I sincerely appreciate any and ALL advice!

DB

[Ethan Atkinson]

Have you looked at the real numbers of the income statements? Are the tenants actually paying what is advertised and are they paying on time?  Check out the real numbers of the expenses as well if that's even possible.  Call the power and water company to verify the units are up to date on payments.  Definitely get an inspection which should reveal plenty you might miss, but hopefully not too much.  This is all the easy research lots of folks don't do. Do they have deposits from tenants? Have you seen the old leases even though they are month to month? This will be a good amount of due diligence but also check with your agent. Or is this off market? 

In my opinion that cap rate is for A-locations and nice pretty A properties.  If there is a whole bunch of other quads and Multifamily on this street that might not be a good cap rate.  How are the neighbors too? Are the owners keeping properties nice? 

Where is the place - I was born and raised in Atl?