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Updated over 7 years ago,
How do I reverse engineer an offer for a 4-plex?
I've been reading about "house hacking". I want to live in a 4 unit building for free and have the other 3 units pay the mortgage, all expenses, and a bit of extra cash flow. I have read story after story of people who got started investing this way, and I think its something my wife and I would like to do.
I've contacted a Realtor and begun receiving listings for 4-plexes in my desired areas. I've also been searching loopnet, zillow, realtor.com, and other sites. I'm struggling to even know what I'm looking for. It would seem most of these 4 plexes were built decades ago and are ugly. I own a 10 year old house, and its pretty. I want to live somewhere moderately pretty if I'm going to sell my house.
Anyway, I found a property I like. Its very nice, and its in a very desirable area. They are asking $920,000 for a 4 plex with a 4% cap rate. So forget about cap rate for a minute, and let me provide some numbers.
Unit 1 - 3/2 - - $1400 a month in rent. (I actually want to live in this one for free)
Unit 2 - 2/2 - - $1250 a month in rent
Unit 3 - 2/2 - - $1250 a month
Unit 4 - 2/1 - - $1150 a month
Gross income $60,600
Expenses $23,215
NOI $38,585
If I live in the 3/2 for free that's about a $16800 reduction in income.
So lets say that leaves me $21,785 or about $1800 to service debt?
Based on this info, how much should I offer? I'm thinking $450,000 with a $50,000 down payment. That is half of what they want! Is it insulting to throw the offer out there? How can I structure this deal? I was just gonna try to go FHA. How can I offer more? I only have $50,000 for a down payment when I sell my house. I would really like to live here though. But I don't want to pay "rent", although I currently pay $950/month for my mortgage now with my current income.
How do you reverse engineer an offer price? Is it ok to insult sellers? I like where I live now. I don't have to move. I'm not under any time constraints...is it wrong to have the attitude that I can make 50 "wish" offers and maybe land 1?