Old 4-plex

[Mike H.]

Hello.

I am considering an old 4-plex (1920s), ok cap rate (4% which is typical of B/B+ in San Diego). The building is built on a steep hillside, which is a pro (private, views), and a con (hopefully it won't slide to the bottom).

Purchase price is about $1m. Estimating maintenance to be $5k/y.

I am new to multi-family. Age excepted, this would be an A-/B+ building on all other criteria (plumbing, electrical replaced 10y ago, nice neighborhood with good appreciation). 

Is it ok to think of it as an A-/B+ or should the age move it lower? 

Anything specific I should be worried about regarding repairs/maintenance?

[Jennifer Lee]

I think best to bring your vendors to see the actual cost of the deferred maintenance. so you can make a plan.  I think when you buy/hold you have to start planning for roof, HVAC, water boiler replacements from DAY 1.

Then you can buy right!

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Here is an example from my porfolio:

I bought a 5 mixed used unit for 200K, they were asking 500K, dropped to 350K

It was missing a ROOF on one of the units.  They were hoping the rental income potential would be enough for someone to bite.  Also it was 75% VACANT!

We put in the offer at 200K (I think I overpaid now, LOL)

I had a 5 year plan, 100K to get the build back into shape.

I am 4 yrs of owning the bldg were are ahead of schedule but this year will make it 100K and when we finish renting and renovating the last unit, we will be at 100% occupancy, and at 18% cap rate.

NEW Roof, All new HVAC for 5 unit (2 commercial, 3 apt), Electrical, Plumbing and rehabbed all spaces.

THESE numbers were determined before I bought the units.  The new rent rates were also determined before  we bought.