Newbie needs deal analysis help on multiple 4-plex opportunity

[Michael Yin]

Hello everyone, I'm working on analyzing an opportunity to purchase several quadruplexes on the same street. This is my initiation into multi-family, so I'm operating from knowledge gained by reading several books (mainly Dave Lindahl). I need assistance ensuring I'm properly considering all the numbers to determine if it's a deal vs a dog, and then I also have a question about how to finance several 4plex that are separately deeded (but all owned by same seller). Your feedback is greatly appreciated. Here are my numbers... where am I off?

# of Units32

Rent per Unit$485

Gross Rents$186,240

Other Income$0

Gross Potential Income (GPI)$186,240

Vacancies Assume 10% vacancy rate $18,624

Effective Gross Income (EGI) $167,616

# of 4-Plex8

Price/4-Plex$120,000

Sales Price$960,000

Acquisition Cost Assume 20% down pmt + 5% other$240,000

Property ValueNOI/(Desired Cap Rate)$931,200

Operating ExpensesRule of thumb is 50% of Gross Rents (assuming tenants pay utilities) $83,808

Capital ExpensesUnknown (owner says 0$)$0

Net Operating Income (NOI)EGI - Expenses$83,808

Debt Services$75,396

TaxesAssume 1.25% of property sale price $12,000

Insurance Assume 1% of property sale price $9,600

Net Cash Flow-$13,188

Debt Coverage RationNOI/(Debt Services) 1.11

Capitalization Rate (Cap Rate)NOI/(Sales Price) 9%

Gross Rent Multiplier (GRM) 5

Cash-on-Cash Return (CoC)(Net Cash Flow)/(Acquisition Cost) -5%

[Account Closed]

Hi Michael,

just some quick questions:

1. what kind of renovations will you have to do, and what are some upcoming reno's (1-5yrs)? - implied questions (condition/age of: roof, doors, windows, trims, boilers, electrical, plumbing, units - leaking/mold issues/ etc etc)

2. how old's the property? (will affect above)

3. why is the owner selling?

4. have you gotten in touch with the owner/broker? can you access actual #s or is this all proforma?

5. how's the rental rate in the area comparable to your units (what range)? and how are you determining this?

6. how familiar are you with the area? A, B, C, D class? are you familiar with the demographics and target renters?

7. what's the inventory like for rentals? (rent vs. own)... etc.

While I don't expect you to the questions above, I know that I'd personally want to have that information down pat as part of my DD. #s can always look good on paper, but the more practical questions/issues that you'll have to deal with can help determine if you have a dog or a deal.

Congrats on expanding your comfort zone!