Possible 4 Plex purchase. What info am I missing?

Question

I have a few SFR's that I have successfully rented out for years.  I am considering buying a 4 Plex near me and am hoping someone with more experience will look over my numbers and comment on it.

4 Units all 2 Bed 1 Bath

600/Month Per Bedroom

28800 Gross Rent

2880  Vacancy 10%

2590 Management 10% (I'll plan on managing myself, but want to put the number in)

2600 Water/Sewer/Trash (Water is currently included in rent)

710 Tax

600 Insurance (seems a little low to me, but that is what the owner is currently paying)

1440 Capital Expenditures  5%

1440 Maintenance 5%

12260 Total Expenses

16540 NOI

7.5 % Cap Rate

25% Down $55000

30 Year loan @ 4.5% $836/month $10032 Debt Service

6508 Income per year 542/month

11.8% return on my investment of $55000

Does anyone think this building is worth buying?  Would it be worth buying at 200K or 180K?

Thanks in advance for your comments.

James Syed · Answer

@Russell Fugitt

Great post!

I hold a real estate managing broker license in Illinois specializing in commercial properties especially Multifamily properties.

I looked at your number closely and found a few things that need attention.

1. Insurance $600 - It seems to be low. Generally insurance is around $1200 - $2000 for a fourplex (replacement value).

2. Maintenance & Repair - Unless the property is 15 years or younger and in great shape, you should allocate 10%.

Strictly based upon your figures, It appears to be a good deal for $180,000.

Keep in mind if the property needs some updating or have any major issues, price will have to be adjusted.

Hope it helps. If you need any more suggestion / advice, kindly pm me.

Good luck!

Russell Fugitt · Answer

Account Closed I have the rent roll and the expense sheet, but I am checking each of the numbers on it since I don't want a big surprise after purchase.  I will keep you apprised of the situation.

@VJ R. I can't get it to tag you for some reason.  Lawn Care and Plowing would be maintenance to me.  Here in Arizona the landscape gravel that covers all the lawns keeps that expense down.

Thanks for all of your thoughts.

Account Closed · Answer

Then if you can handle the issues with managing the property then go for it.

Account Closed · Answer

The only thing you should think about is the $6,508 net income high enough for you to take on the responsibility of more units.

Russell Fugitt · Answer

@David Faulkner The things I considered CapEx are:

2500

Paint 8 Year Replacement

312.5

5000

Roof 25 Year Replacement

200

20000

(4)A/C 15 Years Replacement

1333.333

4000

(4)Hot Water 5 year Replacement

800

2645.833 Total Yearly Needed

220.4861 Total Monthly

You are right and I have upped my CapEx figure to 10% which puts me right at $60/month per unit.  2880 per year puts me just above my predicted 2645 guess from above.

My other properties are in a solid B neighborhood.  This building is C maybe C-.  I am sure that it will not be as easy to manage as the rentals that I walk through every year or so.

Turns out this home has the original roof on it (30 years old) so that will be a required discount if I purchase it.

I am looking for an agent in the area that has any experience with this type of property to see if there are better places to put my money and help me determine a real value.  Let me know if anyone has any recommendations.

David Faulkner · Answer

CapEx of $30/month/unit is WAY too low IMO. Figure out all the CapEx items that can fail, how much they cost to replace, and their lifetime to come up with a reasonable CapEx allocation ... I guarantee that number will be greater than $30/mo/unit.

$600/mo/unit rent is fairly low, leading me to believe that this is in a rough neighborhood ... are your other SFRs in a similarly rough neighborhood? Even if so, if you have a SFR and a 4-plex in the same exact neighborhood, the SFR will tend to attract a higher quality tenant, so to counteract that you may consider a 4-plex in a slightly nicer hood than your SFRs for your first time out of the gate on small multis. Otherwise, be prepared to be VERY hands on with $600/mo 4-plex tenants.

David Zheng · Answer

$180k for sure as I'm sure your insurance will go up.

Zach Quick · Answer

@Russell Fugitt  You also need to account for property taxes jumping up after a new assessment since it will change ownership.  Is there room to be able to push rent's? Is there any initial capEx that needs to be completed as well.

The most important thing is what do you plan on doing in order to boost the rents and total value of the property?

James Syed · Answer

@Russell Fugitt

I just sent you PM.

Russel, keep me posted as I am looking into 6 unit building. This seller is being very difficult to deal with. I have learned so many lessons over the years.

I will feel better if I could assist someone so they don't make same mistake what I had.

Hope it helps.

Note. If you need to call me, don't hesitate. My number is in my profile. Before pulling the trigger, let me know, I might be able to save a bunch.

Possible 4 Plex purchase. What info am I missing?

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