New guy...and girl...and girl

[Andrew R.]

Hello! 

First off, thank you for contributing to this incredible corner of the interweb.  Amazing to see sincere dedication to helping others in such a competitive field.  I have gained so much from lurking, time to get involved.

A bit about me. 32 years old, married, 7 month old daughter, active duty military (yay VA loan!) currently stationed in Virginia for the next 2 years.

The plan; Buy a duplex/tri/quad in Virginia with my VA loan (can do down payment to ensure cashflow, if needed). House hack and BRRRR multi-families through the rest of my career as I must to move every 2-4 years (for the next 15 years). Upon retirement hold properties that are doing well and liquidate others (if needed). Then, reinvest in the area that we retire (undecided location). Sit on boat, catch fish, die happy.

Action taken; Lots of reading, looked at 10 properties (and counting), ran numbers on 50 properties (and counting), attend every open house we see to talk to realtors, drive/bike/walk for dollars, hired a realtor.  We are starting to figure out what we want and what constitutes a good deal but feel like we will never truly be ready....how do you know? Multi-families on the market are few and far between in our desired area, especially ones that cash flow prior to rehab.  

Best option so far; Quad (2/2, 1/1, 1/1, 1/1) listed for 450k.  

Monthly Rent- $3,575       Expenses-  $3,877 (10% repair, 10% vacancy, 10% mgt fee + taxes, utilities, mortgage, insurance, ect.)  We will manage until we move.

House was built in early 1900's but in a great area, very easily rented and should be able to bring rent up to 4k with little rehab....With a good home inspection and hope that negotiations go our way, I'm very interested....but is this biting off more than I can chew for a 1st deal? 

Thank you BP community,

Andy

[Patti Robertson]

@Andrew R. - I love what you are trying to do, and do agree that the property you are describing is in probably the best area you are going to get with a 4 plex.  I realize that is important, considering you are going to move your family into it.  From an investment standpoint you can get a much better return in our market though. Playing devil's advocate, here are the concerns I would have with this property.

1) Your budged monthly rent is BEST case scenario.  You are quoting the highest rents these units have ever achieved.

2) The 10% vacancy looks to be impossibly high for this building, based on the history.  The 2 bedroom unit is listed as active now and has been on the market for 205 days.  The time before that it took 108 days to rent.  Looks like the last 5 tenants have only stayed for one year terms. Units 2 & 4 have been rented for 2-3 years at a time.  Unit 3 bounces from 1-2. 

3) Looks like none of the utilities are separately metered.  Owner pays water, electric and gas.  Personally I would never buy something with shared utlities unless I bought low enough to pay to have them separated.  Especially in a 1908 building that has poor insulation what what looks to be old windows from the photos.  You didn't itemize your expenses, but you want to look at the building operating expenses separate from the mortgage/tax/insurance.  You are already not cash flowing with all units rented, based on your numbers though.  You should easily be able to live in your unit for free and have the other three units cover your mortgage in our market.  

4) It's harder to rent places in our market that don't have central air. In the last 6 months there were only 2 apartments reported as rented in Ghent and every one had central air. If I go back a full year, 13 rented with central air and 2 rented with window units. The average days on market for central air was 52 days, and the average days on market for the window units was 122 days. You can add central heat and air, but it will be very expensive because the you have to add all the duct work.  The units are also already small, and the duct work will make them fee smaller because it has to be added outside of the existing plaster walls.

5) What are you planning to spend on upgrades?  $4K won't take you very far. Over time you will be able to increase rents, but based on the long vacancy periods, you probably can't do that now.  Separating the meters would be key, but that's pretty expensive.  Looks like the wood floors need refinishing.  You can see that clearly in the photos for unit 1. Unit 2 floors look OK. Units 3 & 4 are covered with carpet, which means they probably need refinishing.  Of course you wouldn't do this while they were occupied, but refinishing the floors is a much better investment than installing carpet.

6) I'm running out of time to look, but I would be curious to do more analysis on rents +utilities vs rents without utilities.  Most buildings either the tenant pays all their own, or only water is included.  Tenants love to have utilities included, but we never get enough premium in rent to justify the expense.  In addition, your expenses will spike in the middle of summer and winter.  Window unit air conditioners draw an extraordinary amount of electricity in these old buildings with no insulation.

I know Ghent is great, but you may have better luck holding out for something in Ocean View that's not in a flood zone - they do exist. 

I hope this was helpful.