First Timer - 4plex Due Diligence

[Miko Lee]

Hi all,

I came across a 4plex that i am interested in investing. The area seems sketchy. I've been researching and analyzing for months now. I've been focusing on single unit until I came across this multi-family. What kind of due diligence do I need to do before moving forward with a potential offer? This is my first one and really want to make sure that I am on the right track..

Questions:

1. All 4 units are rented out with ridiculous low price. This is not a rent control area. Is it possible to increase rent when take over? Is it possible to evict sketchy tenant(s)?

2. What is the anticipated insurance costs for 4plex? Did some digging and some people here mentioned the average is roughly $50 per door per month? Is this accurate?

3. How do I confirm the monthly expenses such as water/trash? 

4. What other expenses should I consider when it comes to multi?

5. CapEx % and monthly maintenance %?

Again, from the pictures, the place seems sketchy. I would rather not go forward with the property if it comes with horrible tenants.. Any advice is greatly appreciated!! Thank you!

[Andy D.]

If you don't like the area you will most likely not like ANY tenants. You will not be happy then being an owner/landlord. I really do not recommend that you start your landlording career with such parameters. Find a better object, maybe a Condo (or two, whatever you can afford) where some things are taken care of. Yes, less cash flow but typically also less hassle.

Re your questions:

#1 Yes and yes. Consult the leases. You can always get rid of tenants under the rules dictated by the lease and/or law. Doesn't mean it's going to be easy. ;-)

#2 Seems a bit high but not totally unreasonable, but then again I never checked the Costa Mesa area for that.

#3 Good question, actually never had to do that as it was either handled by the HOA fees and/or the tenants paying it. Would be curious myself to hear an answer to that.

#4 I would factor in property management, even if you plan on managing yourself. You should also make sure you have sufficient funds at hand. You have 1 building but you have 4 units. That's 4x potential problems (water heater, hvac, appliances...). Budget for it. Imagine you have 2 water heaters going bust (literally) and the HVAC dying in one unit, and a burst pipe in another one and water damage in the unit below. All that within one month. You need serious money to cover these expenses! Doomsday scenario? Maybe. Totally unlikely? Definitely not! Budget for it. You can't leave the place unfixed for x months till you got the money to fix it...

#5 Run with the usual figures but consider the buildling's age and overall condition, of course. I don't really - generally - budget differently for a 4-plex than for say a Condo. Although typically with a Condo the roof, for instance, is usually the HOA's problem. With a 4-plex it's definitely yours.