Fourplex - Good first investment?

Question

I have found a fourplex, I'm kind of using as a base to recognize a good deal.

The property is in a prime location, and looks very nice (only seen in pictures so far) and the asking price is $485,000. The seller is a licensed realtor and says the ROI will be 17%, my question is (and again this is in Canada) what are my options for down payments on this specific property. Time and time again I hear about people getting properties for low down payments or lend from places other than the bank. I don't know how to do this and I'm trying to understand it a bit better. Because this would be my first investment, I don't now if the bank would give me the amount needed for a mortgage.

In general does this sound like a good deal? I realize you are not in the same area and don't know the geography of the location but I guess what I'm saying is, given the ROI and price, and being my first investment property, would this be a good idea. Or is the idea to start much smaller and work up to something like this?

Roy N. · Answer

@Devon Young

Any further news on this lead? In our last exchange, I believe you had established the Vendor's rosy prediction of a 17% return was based upon leverage - a 20% down payment and 80% mortgage financing.

Anne Wallace · Answer

@Devon Young

Good job thinking about investing at a young age. When you figure out a good deal for your first investment , and even if you finance it for 30 years , you'll have your property paid off at an age when some of us are just starting. Kudos for making plans for your future.

Christian Carson · Answer

I always analyze deals based on the unleveraged cap rate. A deal is only good if it's good without financing. The problem is that even if a property has an acceptable leveraged ROI, there are so many types and varieties of financing that a bad deal could look good and vice-versa.

Devon Young · Answer

thank you very much! It's great to get any advice. Even better from someone who knows the area! @Roy N.

Roy N. · Answer

@Devon Young

Are your Spidey senses are tingling? ... they should be!

Unless Ingersoll has moved since my uncle built buses there 40 years ago, I would be suspect on any quadraplex in that price range (>100K per unit) generating anything near 10% return, let alone 17%. I suspect the agent's 17% is comprise mostly of "anticipated appreciation" and not on the business operations of the property.

Before worrying about how you are going to finance this 4-plex, let's determine if you should be buying it in the first place and, if so, at what price. Ask the realtor for the past 2-3 years of operational finances ... s/he will either try to intimidate you away from wanting/needing them - in which case, walk away - or will provide you with a set of rosy, half-fabricated numbers {accept these with scepticism ... if you get in the territory of a deal, you will ask for corroborating information from his/her accountant or tax returns}.

Once you have the financial data, take a run at analysing it, then bring it here for folks to review and assist you with coaxing the {likely} truth from the numbers.

Fourplex - Good first investment?

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