Is this a good deal?

Question

I'm trying to get started. I'm looking at a fourplex in my market, just not sure whether or not to pull the trigger. Each unit is 1 bed/1 bath. This market is very hot right now, we have a rental and housing shortage.

Asking price $119,000

Current rent $500/unit

This is an older property, looks to have deferred maintentance.

In a C neighborhood (I think).

Any help will be greatly appreciated.

Bjorn Ahlblad · Answer

@Gary Waddle When starting out it is a good idea to decide what kind of property and tenant you are willing to deal with; and how much time you want to devote. Or maybe you want to have a PM? Older properties and lower income tenants require a lot more care and feeding than you might want to put up with. A 500 dollars a month tenant, and an older property in a low income area (You called it a 'C' but you are not sure) is jumping into the deep end IMO. So make those decisions first before you get into more serious due diligence like rent rolls, leases and financials. All the best!

Gary Waddle · Answer

Thanks for the reply, Bjorn. I do plan on using property management. Part of me agrees with what you're saying. I might be biting off more than I can can chew. The other part of me thinks this might be a good first property because it's cheap and should provide plenty of learning opportunities. I also think there's some opportunity to add value.

Gary Waddle · Answer

@Kevin Mika, $500 is the lowest rent I have seen in that area. I would say conservatively I could get $750 if the property was improved a bit. New carpet and paint for sure. I never considered offering discount rent in exchange for property management, that's really smart.

I'm not sure what else I could add, because I haven't seen the inside. I asked for more information on the property and was told that the owner decided to fix it up himself so he could sell it at a higher price. They are refusing to show it right now. Not sure what changed, they dropped the price less than a week before I asked for more info.

On to the next one I suppose. I plan to touch base with the realtor on this one next week.

Thanks for the input everyone.

Kevin Mika · Answer

I am wondering what value adds you are planning on doing?  Will this raise the rents? Or is $500 max in that area.  Also allow for more turnover since it takes a renter who wants to live in a fourplex to stay there long term.  Also instead of property management you could always discount 1 tenants rent to take care of property for you but be careful they don’t get a power trip and run your other tenants off.  And if you are buying it makes sure you walk inside every unit and account for all repairs and ask the tenants what the previous owners neglected. Might help show you hidden issues.

Theodore Arzt · Answer

Also, I’m assuming that if it’s 4 small units that you don’t have 4 furnaces. So you will be paying for utilities too. At the new roof cost the same and a crappy house as it does on a good one. But this is the type of deal I could afford to get started so I will deal with the crazy tenant and down the road if it’s not working now are use this for cash to get into a better neighborhood

Theodore Arzt · Answer

I am new to this. I am almost done fixing up my first house and I’m not positive on the neighborhood but I believe it’s probably a B- or maybe C.  Fixing up the house was easy but I’m still figuring out renting to people. One of the things I’m learning Is that in my neighborhood, I’m having to adjust everything I learned about screening  on bigger pockets. Every applicant I have has something wrong with them. I just have to figure out what I’m comfortable with. You’ll be dealing with people who have not dealt with life responsibly. So the numbers Will still run a well  but But not as well as they did on paper because I’m going to have some tenant issues

Gary Waddle · Answer

@Neel Jain, I have driven by it, but haven’t seen the inside yet. I hope to do that in the next couple days.

Neel Jain · Answer

@Gary Waddle, you said you haven't looked at the property yet?!   Go look!!  Check it out first things first if you are int he same city!!

Having said that, I would actually perform my internet research/analysis first and give it a personal ranking - let's say after you've researched online, you rank it at 6 on 10 where 1 means not buying and 10 means 100% buying.  I would then go to see the property.  This would do a lot of things: a) corroborate your analysis, b) tell you where you went wrong and c) you've actually seen the property in person!

Things will make more sense after seeing, researching etc. - to buy or not to buy, go for funding or not.  Ideally, the loan should be as low as possible when starting out.  Not only it creates greater cash flow, but helps in creating a good 'history' for bankers when they see you have managed a prior loan more cleanly.

Gary Waddle · Answer

@Neel Jain, thanks for the input. The new construction is single family housing. I have family in that neighborhood, and I lived in that neighborhood several years ago. It is in Carlsbad NM.

I haven’t looked into financing yet. I’m guessing it would be a conventional loan.

In 10 years I think the neighborhood will be about the same. It’s an older, established, middle class neighborhood.

Great questions! Got my mind racing.

Is this a good deal?

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