Fourplex Purchase Questions and Analysis

[Lee Fahy]

I'm looking at purchasing a fourplex with the following numbers:

Asking: $225,000    (my research indicates he was asking $215,000 for the last two years)

Property Tax: $3560  ( non homestead)

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Built: 1977

Heating: water baseboard with natural gas boiler

Water: owner pays, single large water heater

Laundry: coin operated (owned)

Garages: 5 total

Separate electric meters

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Rent: $650 for 3, 2 bedroom 1 bath units 750sqft

Rent: $550 for 1, 1 bedroom 1 bath unit 600sqft

Total: $2500 per month

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My plan is to purchase using an FHA 3.5% down and owner occupy.

PITI: $1594.57

CAPEX: $200

Vacancy: $200

Maintenance: $100

Water/Sewer: $150

Garbage: $105

Total: $2349 per month + heat

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Yearly $30,000 income

Yearly $28,188 in costs + heat

Cash flow: $1812 per year

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Obviously this is not a deal I'm going to purchase, I'm looking to offer him an actual price that makes sense. When I owner occupy the taxes will go down temporarily but it'll need to make sense once I move on (I plan to occupy the $550 a month room). 

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My question is this:

I'm new to the business, I have a duplex already but this will be my first four unit. I checked the owner on the property taxes, ran a quick background check on him myself (has six or seven evictions in the last 4 years). I spoke to him personally and viewed the single unit he has open. He basically says he wants out of the game. 

He doesn't want the tenants to know he's selling and won't let me view the remaining units, even through my realtor. The fourplex is in a decent neighborhood B class. 

How would the more seasoned professionals approach this situation? What kind of process would you guys use? I'm not buying something I don't get to see and it's difficult to come up with an offer when you don't know what you are buying. 

Any help would be great, thank you.

[Ryan D.]

It's very common to not allow potential buyers to see units prior to having the building under contract.
I own several 4-plexes- what I do is make some reasonable assumptions about vacancy & maintenance (btw your maintenance budget is way low - assume $125/unit/month), rents, insurance (you can get actual quotes on this), lawn care, and upfront renovations needed (I usually assume $2.5k/unit). Then make your offer based on these numbers, and subject to inspection. One you do the inspections and see what shape the units are in, you adjust your projected rental income and upfront renovation costs, and negotiate an appropriate change in your purchase agreement.