4 Plex Unit for sale, good deal?

Question

Hey all,

I found A 4 Plex unit nearby and am looking at the different options. Because of my limited knowledge i'm having a hard time wrapping my head around how I could make this work. Property is selling for 350K, 3700 Sq feet (925 per unit) with a guaranteed rental income of 3125. I don't have any money to put down, I would probably use hard money to put 3 percent or so down. Is this a good deal, any and all information would be great!

Alex Hamilton · Answer

Eric, all the ideas and comments given you appear to be good. I just wanted to add that, "there is no such thing as guaranteed income from a rental property. The best paying tenant can have problems which may result in an eviction. There are maintenance problems which can hurt your income. I could go on and on. However, I have always been told that, "if you can't give solutions to a problem you become a part of the problem". So, I will not continue with the negatives.Here is a solution that most new to the business as well as old hands forget. Your rental property is a business and should be handled like a business, and handled apart from your personal business and credit lines. The private money loan you may need as working capital can be obtain from your LLC or other business entity you should be working through. Get a business start-up line of credit after setting up your business entity to cover the unsuspected. Like I said, "there are no guarantees in running a business". So, treat your new rental business as the business it is.

Ray Seaman · Answer

@Robert Shedden I can't count myself an expert there yet. However, one tactic I've used to start getting attention is to put together a document which outlines your investing strategy and the criteria you're planning to use in buying properties. I think that's a great way to demonstrate your knowledge and professionalism even if you haven't done a lot of deals yet.

Ray Seaman · Answer

In addition to the good ideas Rob mentioned, this seems like a great opportunity to start looking around for private money. If you can turn the fourplex into a solid deal and put it under contract, a private lender could ensure you don't have to come out of pocket for the acquisition. There's lots of great info here on BP for how to find private lenders - they're closer than you might think.

Rob Massopust · Answer

I did not see the VA component. Maybe you can partner up with someone that can qualify as owner occupied and you can co-sign or gift the down payment.The other thing is maybe you can create the homes into rentals and go for the 4 plex as FHA - if you can justify the down grading in living it might fly. Pull out equity on the homes and you can do the 4 plex with about 25% down conventional

Robert Shedden · Answer

Yes, I think that is a good start. If someone is going to trust me with tens of thousands of dollars, I need to lay out a very strong case in my business plan!

Robert Shedden · Answer

Great point Ray! I think the best way to scale quickly is to get investors on board. That is something I am trying to do to get a couple of fourplexes under contract in my area. I am reaching out to my network and talking up real estate in most of my conversations I have also been reaching out to lenders I find on BP . Any other suggestions on finding private money?

Eric Horton · Answer

@Rob MassopustYah, It looks like a great opportunity, but unfortunately it's a little farther from work then I want to be. So, I have no intention of actually living there. I'm just trying to find a foot hold into expanding my rental portfolio. I own two homes already using my VA loan.@Ray SeamanThanks for the response, as I said above I own two homes already with the Va loan so that's maxed out and I intend to strictly use this property as an investment, not to actually live in. Looks like I'm out of options... Might be best to just keep saving for now, while building equity on the two homes. I'm just looking at any and all options to expand my rental portfolio.

Ray Seaman · Answer

Hey Eric- It's tough if you don't have any money to put down on the property. If you're a veteran, a VA home loan may allow you to do that. The next best thing is what Rob mentioned, which is an FHA loan that permits a minimum of 3.5% down. I've never seen a hard money lender allow less than 10% down on a property. In both the VA and FHA loans, you would need to live in the property.Your best bet may be to simply wait a little and save enough for a 3.5% downpayment through an FHA loan. That's essentially what I did to buy my fourplex last year, which I house hack.Regardless, best of luck to you in your investing journey!

Rob Massopust · Answer

As a standard sale that is a fair deal based on those numbers. ie GRM =9.33 - Have to compare that to other properties to see what is going valuation. In my market GRM of 15+ is normal but makes no sense, yours makes sense but really with a higher down payment makes this a decent deal.Are you trying to buy and live in or to flip? Hard to get a HML with 3% down. more aggressive lenders will do 10% but most likely over 20 % and the carrying costs will kill you until you can refinance out and if you can not get enough of a bump hard to get a refi.You can get a FHA loan with 3.5% down but need income to qualify, the nice thing is the other 3 units income will help you qualify and up to 90% of that income could be counted ie"$2812.05The only thing with FHA the PMI will really cut into your cashflow and you might only be a little bit ahead until you can get the rents up, repairs etc and pay down the amount or refi to get rid of the PMIDepending on your tax rate it looks like you can live there with 3.5% down for just $317 - not bad.https://www.fha.com/calculator_paymentsIf the property is in decent shape and in an area that you would want to live in find a lender in the area and make an offer. You could offer a little less or even get a seller credit.If I was in your shoes and could do it I would take the next step to make this work.