Help with evaluation of a 4 plex

[Christopher Hunter]

Hello Biggepockets,

Here are the particulars: Asking Price $295,000

4 plex, 8 bd/8b, 4,000

electric no gas

rent $3,000

water bill $70

trash $152.92

sewer $52.93

taxes $1537.78 annual

security lights $32

My GRM is at an 8 and running my calculations I should come up with $288,000 valuation. If seller is willing to negotiate to get $288K or below, does this pencil as a good investment?

Thank you ahead of time for your response

[Daria B.]

@Christopher Hunter

I ran your numbers through my deal check app and came up with the following. Yours compares to a quad I am looking at with the exception of taxes that are higher than yours.

I added 10% fees for PM, 10% for R&M and CapEx. Also, assuming 25% down with a 30 term at 5% interest. You didn't say what your financials were so I assumed what seems the usual.

What are you looking for in returns?

I've set my minimum for a quad to $200 per unit after all expenses and mortgage payment.

4plex Property Report:

Address: 4plex, USA,

Beds/Baths: 8 / 8

Type: Multi-Family

** Purchase **

Purchase Price: $288,000 ($0/sq ft)

Purchase Costs: $8,640

Rehab Costs: $0

** Financing **

Down Payment: $72,000 (25%)

Mortgage Amount: $216,000

Total Cash Needed: $80,640

** Cash Flow (Monthly) **

Rent: $3,000

Vacancy: -$249 (8.3%)

Expenses: -$1,318

Net Operating Income: = $1,433

Mortgage Payment: -$1,160

Cash Flow: = $273

** Returns **

Cap Rate: 6%

Cash on Cash: 4.1%

Return on Investment: -3%

Internal Rate of Return: 8%

Rent to Price: 1%

Gross Rent Multiplier: 8

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http://DealCheckApp.com

[Christopher Hunter]

I am looking for a value add play.  He provided with with the pro forma numbers, I just found out.  I am looking at $150 per unit.  I was looking at an all cash transaction. 2 units are at $650, 1 unit at $700 and the 4th unit is vacant.  I will have to get in there inspect the units and see about getting the rents up to $750.

[Daria B.]

Originally posted by @Christopher Hunter:

I am looking for a value add play.  He provided with with the pro forma numbers, I just found out.  I am looking at $150 per unit.  I was looking at an all cash transaction. 2 units are at $650, 1 unit at $700 and the 4th unit is vacant.  I will have to get in there inspect the units and see about getting the rents up to $750.

When you say all cash transaction are you saying no financing?

[Christopher Hunter]

Correct.  I am going to look at it both ways. Private/hard money and then all cash.

[Daria B.]

@Christopher Hunter

I removed the financing and made it an all cash deal of $288. Seems to me that with all cash you have this immediate equity and your cash flow is so true that how can it not be a good deal. See end of post.

In my case, I finance for several reasons. Basically, one is not being able to do all cash at that amount but also wanting to use the finances on my tax return to reduce or balance the income. ie interest. I'm already in a high income bracket. I'm buying and holding for my future retirement so any purchases now I want to get as much cash flow in an area that will sustain. My properties also have appreciated quite well and I hope they remain that way.

So for a MF, I look at more of a cash flow instance to acquire more funds for saving and purchasing.

I'd say your have a good deal relative to the all in cash and cash flow you would be getting. With the cash flow you'd be getting your purchase costs back in a year and still have positive returns.

I am starting to look at other metrics like IRR and what that means to my investments.

4plex Property Report:

Address: 4plex, USA,
Beds/Baths: 8 / 8
Type: Multi-Family

** Purchase **
Purchase Price: $288,000 ($0/sq ft)
Purchase Costs: $8,640
Rehab Costs: $0

** Financing **
Cash Purchase
Total Cash Needed: $296,640

** Cash Flow (Monthly) **
Rent: $3,000
Vacancy: -$249 (8.3%)
Expenses: -$1,318
Net Operating Income: = $1,433
Cash Flow: = $1,433

** Returns **
Cap Rate: 6%
Cash on Cash: 5.8%
Return on Investment: 2.8%
Internal Rate of Return: 5.8%
Rent to Price: 1%
Gross Rent Multiplier: 8