4-plex investment. Advice for a newbie

[Tiffany S.]

I am looking into my first investment property. I came across this 4-plex. Each unit rents for 800$ a month. Already rented out. Owner says the fixes needed are cosmetic. Asking price is 275K.

Being that this would be my first investment, I have a lot of questions.

1. when looking for investment properties how do you determine what to offer? I want to offer 210k. Is that too low? Should I even bother? 

2. Anybody have and advice on creative financing. My credit is great. I did just buy my own home last month. Will that affect me getting another mortgage? I definitely don't have 20% for a down payment.

Any advice for a newbie is appreciated.

Thanks!

[Mark Mosch]

Lots of things here:

1.  Don't believe anything the owner says - just as a matter of practice.  make sure you hire an inspector to look and confirm.

2.  You can offer anything you want - they can just say no.  If it's a multiple bid situation on a hot property that just came out, then you need to do your best offer.  But if this is a random thing you just found, then the worst that can happen is the guy says no.  You can then start a dialogue about "what would you want" and see if you can agree on a price.

3.  As your first investment property it is likely you will need to come up with the 20% unless you get really lucky because you have no track record.  Can you try to borrow from friends and family and give them an interest in the deal?  Once you get the first one under the belt it will get a lot easier, but this first one you might need to stretch on.

4.  Check sales in the area for 4-plexes.  Go on Loopnet or if you're working with a broker have him run comps.  Look at similar properties as far as size, unit type, and age and then you'll see if your $210k is reasonable.

5. As far as financing, a 4-plex is considered a 'conforming' loan - like a single family house, so you should be able to use your good credit to get a decent financing rate. But I as i mentioned above you likely will need to have at least 20% if not 25% down, because banks are more picky on rental properties you don't live in. I would recommend talking to a bank first and telling them your plans and then asking for what kind of things they think you could afford. I never underwrite a property evaluation without knowing up front more or less what the bank will do for me. I've had deals that i've killed off because the bank wanted to do 70% LTV instead of 80%. Good to know that stuff up front.

6.  Also - make sure you fully load up a spreadsheet to project the cashflows.  Looks like your rents would be good to make you money on anything up to the purchase price, but you need to see all the costs.  What are utilities?  Are any separately metered or do you have to pay them?  That can be a big item.  What will the property taxes be after you buy it?  If they've owned this for a long time, they might be really low but when you get reassessed by the county after you close, they could double.  are there other maintenance things that he has to do for tenants like mow lawns, shovel snow in the winter...etc...  Get all that information from him (called the 'trailing 12' - for all the numbers for the last 12 months) and see where it leads you.

These are just a few things, and there are calculators for these things you can download on this site.  All in all, don't be deterred - once you've done all your homework and it still looks good jump in and figure things out.  You never can figure everything in advance, but do your best and then let the learning process begin.

Best of luck!!