4-Family purchase-Objective perspective wanted

[Andre Chambers]

Hello BP!

I’m seeking some outside perspectives on a deal I’m analyzing.

I’m looking at this 4 family (all 1bd,1ba units) in a solid “B” area near me to house hack. The other 3 units are rented with long term tenants. I currently rent, and my lease is about to be up so it’s kind of good timing.

Numbers while house hacking:

Rental income – 1375 (provided by the selling agent)

Total expenses—1415 (PITI , capex, vacancy, repairs, self-managing)*

Cash Flow- (40)

*(capex, vacancy and repair percentages based off fully rented property of 1825 rental income)

My current residence rent is 975.

To me, it would be a HUGE savings to move into the 4 family going from 975/month housing expenses to 40/month. This saving could be used for getting ready for the next deal, paying down student loans or something else financially intelligent and proactive.

If I were to move out in a few years, the unit would rent for about 450. That takes rental income up to 1825.

Numbers fully rented:

Rental income – 1825

Total expenses—1417 (PITI , capex, vacancy, repairs, self-managing)

Cash Flow- 408

COC ROI-61%

The issue is that I am now teetering on the threshold of hiring a property manager due to the number of doors that would bring me to and my knowing that having to manage that many properties while having a full-time career could be un-wise of me. I have been quoted PM fees from 70-90/ unit. This would destroy the cash flow of the 4 family taking it from 408 down to 128 with 70/unit PM fees. The COC ROI being 61% means next to nothing to me in this instance as it drops to 19% COC with PM fees and cash flow of 128…not that great for a 4 family fully rented I thought.

In the short term, it would be great to put 935 back into my pocket each month, but I know not to be that myopic; long term is harder to justify. Any comments/ suggestions would greatly be appreciated.

Thanks to all in advance.

[Todd Dexheimer]

Hard to say on the deal with out a purchase price and age of the building, but I would consider it at the right price if you can live there for a few years. I would not hire a manager to run it after you move out. If it is in a B area you will not have much as far as management goes. This also allows you to learn that part of the business, gaining you a good deal of knowledge. Personally I think everyone should manage their own rentals for a period of time before hiring out management - this helps you understand that aspect and what to look for in a manager.