First Fourplex need help!!

[Nicholas Lehman]

Greetings, I am under contract to buy my first fourplex in Anchorage Alaska. In this area inventory of available multi family units is low, rents are fairly high and it appears to be a bit of a sellers market. The unit I am buying (or possibly not buying) is a fourplex with four 1br/ 1 ba units. All have washers and dryers. The inspection revealed a host of cosmetic repairs, water heaters on the edge of their life spans, some faulty window seals and it is in need of an exterior paint job. Some of the units are under rented and some are at 1000/ month which is about right for market rate. So i am trying to do some last minute analysis as i keep running numbers the worse this place seems to look. But then i look at what else is available and i go back to thinking that i am getting the right place....can anyone help me analyze this property a bit? Sale price with seller paid closing costs:338k Fha loan: 3.5% down, 3.25 interest rate, Current rents:700,915,995,995 (i plan to occupy the 700 unit and remodel it and increase the rent) Estimated repairs and remodeling: 15k So i keep finding myself saying things like "after I raise the rents it will have cash flow" or "after i refi and don't pay pmi it will be a good deal" On my spreadsheet i take into account debt service(p and i plus insurance and taxes) all utilities, snow, lawn, property mgmt, 5% vacancy, 10% of rents towards Maintainence/repairs/capital gains....it works out to costing me 100$ a month to owner occupy and only cash flow 400 a month after i move out which would take a long time to add up the 15k and labor needed to remodel and raise the rents to get to the 400 a month....is it worth it? Am i being to conservative?

[Michael Boyer]

Hi Nicholas,

First, I don't like the numbers that much with the cash flow only "after" some uncertainties like rent raises (what if the market changes) or PMI elimination (what if your equity falls due to prices, see budget issues below)...

Second, Cap Ex may be key here; for more on this, see this very clear B. Turner article: 

https://www.biggerpockets.com/renewsblog/2015/10/1...

In fact, just knowing what I do about the state of Alaska, its building cycles, and housing stock, I would guess (and I could be wrong) it is an 80's vintage 4 plex, perhaps with T1-11 plywood siding?

And I am also guessing, from your statements, that the current owner was not a stickler for maintenance and may have squeezed all the juice from the lemon (leaving you many of the the major and minor component to upgrade). 

If I am right on the vintage, a wide variety of items may be near the end of their useful life, like windows, doors, cabinets, siding, any decks, etc. 

There are urgent about to fail and flood items like water heaters that you are looking at... but also look at items like the roof (new or a few years away)? The pipes in the crawlspace ( look like corroded green copper or upgrade to PEX?). 15K may be conservative in Alaska. 

Some items, like painting, may be DIY which could lower labor costs, but the climate is hard on even minor building flaws, so rot or mold (from uneven heating or insulation or ventilation) can be common costly issues that require more labor and materials.

Third, add in that we are looking at some budget uncertainty near term from oil prices (with large state budget reductions in spending, much of which cyles and flows through Anchorage).. Overall, I would really sharpen the pencil and see if it is a cash cow or cash alligator.. Much will depend on the exact property, of course, and your local market, but from what you have here, it may be a walk away--if you can do so-- or lower offer prospect (could be 25% off in a couple of years, who knows..)... Best of luck