Need advice on a deal

[Connor Deneen]

Happy Labor Day weekend everyone! I have a question regarding a fourplex property that was just put up for sale a few days ago. Before the numbers, here are the basics: I will be using a VA Loan (so zero money down), and will be living in one of the units, (And yes VA does up to 4 units). The property is in California, because that is where I am stationed currently. Long term I want to invest out of California, but I'm going to be here for a while so I'd like to get a property and take advantage of the zero down loan while I'm here, preferably multifamily, but I'm not opposed to Single Family. This property is in pretty good condition, which it would have to be for it to pass the VA inspection. Ok, now for the numbers:

Asking Price: $425,000

Taxes (CA): roughly 5,500/year, less if purchased for less. (458.33/mo)

Current Rents: $825/unit

Vacancy: Less than 5% for last two years, only one turnover

Nearby similar rents: $800-$950

Property Type: Garden Style, single story

Property Class: B

Property Location: B

Insurance: Roughly $150-$200/mo

Managing: I'd be managing myself for at least the first year

I've ran the numbers and including cost of property management(even though the first year or so I'll manage it), and accounting for capex, garbage, maintenance, and all other related costs I know that with the loan being zero down and me living there so as not bringing in one of the four rents I'll technically be negative cashflow, and I know Brandon Turner and David Green would say what the heck are you doing man!? I know.

That being said, I wanted to get all of your perspectives on this, is it worth making an offer to where I'd be living for free, the other tenants' rents would cover PITI as is, and even more so once I raise the rents. I know I'd be paying down the principle and over time I'd start to cashflow even after saving for capex, maintenance, etc.

So what do you think? Yay/nay? What do you think I should offer if at all? Their agent told me he already has a "good" offer on the table, and ever since moving to California all I've heard is that people buy here to break even on cashflow and wait for their return on investment way down the road. But again, this is California, so who knows where things will be down the road. Is it worth it since I'm using next to zero of my own money? Or do I wait and keep looking? Any and all advice is greatly appreciated, thanks!

[Connor Deneen]

@Adam Pettit 

Thanks for getting back to me so quick, the numbers still don't look great at zero down when I'm not living there and if I'm not managing it with the current numbers. The only way I could make the numbers work, and I look at this as if I were putting down 20% so that my numbers aren't ridiculous (too meet the 100/door rule of thumb with a 0 down loan I'd have to purchase it for $279,000), is:

At current rent ($825/unit), purchase price would have to be $330,000.

At current asking price ($425,000), the rents would have to be $1,000/unit.

At an offer of say $400,000, the rents would have to be $955/unit.

So to answer your questions: "How does the math look in a yr or so when you move out and fill the fourth unit with a renter?" -Not great if I purchase for 425 and if the rents stay around $825. However, if I can get it for closer to or even less than $400,000 AND raise the rents towards 950, then it would work even with accounting for property management. Side note, if I were to get it for $400,000, was able to raise the rents to $950/mo AND manage it myself, I'd meet the $100/door rule even with zero down.

"How does the negative cash flow compare to what you would be paying in rent? You have to live somewhere....." -Right now I'm paying about the same as the units on the property for rent, and I am living with a coworker at his house month to month. So with me living in one of the units, and purchasing it at the asking price (I'd be managing as well), the other three units at the current rent of $825/unit would cover slightly more than my PITI. So I'd almost be living for free (minus my own utilities), any repairs would have to come out of my own pocket until I raise the rent.

"Is the 4plex close to the base and how is demand?" -Relatively, yes. There is a small town closer to base but this one is the closest medium sized town. There is a very high demand for apartments and houses in the area this property is, nothing stays on the market for rent very long and the pickings are very slim.