4Plex Evaluation

[John A]

Hello All!

I'm a bit of a newbie and I'm looking to purchase my first 4-plex. Please note that this is in California, so the rate of return may not be like that of other markets. Nevertheless, please let me know if I'm full of it. I don't mind you guys being harsh on me as long as its constructive. :)

Here are the initial details:

2 story 4-plex
Asking $379,000
Built 1959
3 units are currently rented and 1 is vacant
2 at $850 and 1 at $800
Seller pays sewer, water and garbage, which is $230 per month
Maintenance is $70 per month
Taxes are $3200 per year for $265 per month
Insurance is $1200 per year or $100 per month
Total expenses for him are $665 per month

I plan on using my VA loan benefit and live in the vacant unit.

Wanted to see what your thoughts, advice, or words of wisdom may be? I am going back to ask for a Schedule E and/or history of tenant and payment. Just wanted to know what other things I should be asking for at this point. Thanks!

John

[Henry M.]

Here is a quick and easy way to determine whether you should offer or pass on most multi-units for sale from duplexes and up which are roughly "C+'' class.

This exercise will help eliminate you wasting time on whether this deal is even worth considering. There are many variables from condition of property, area to location, etc... But this is what I use and it is usually done within 2 minutes.

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Pro forma Analysis:

4 Units = $825 (median) rent per unit amount

= $3,300 per month X 12 months = $39,600 (annual gross scheduled/expected income-rents)

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$39,600 (annual gross scheduled/expected income-rents)

/ 50% (operating expenses) rule

= $19,800 (NOI)

/ .10 (Cap Rate) - Note Cap Rate can be adjusted to your preference...

= $198,000 (Maximum Amount Offered)

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In this case, I would not even blink an eye to walk away and moving onto different pastures.

(KISS)

"Keep It Simple Sir" (male) or "Keep It Simple Sweetie" (female) - LOL. I just don't like the original acronym spelling "stupid".

Just my two pesos.

Big Henry