Utah Deal - 4 Plex in Murray (Salt Lake Area) - Numbers

[Jay Lalik]

I am looking to owner-occupy a 4 plex with a VA loan. I will get out of it in 12 months and get another.

That is the theory anyway.  I am having a hell of a time finding one that is a reasonable price or one that is not in a warzone.

This property in Murray is something I would be happy to live in and proud to own when I move out and rent all 4 units.

The condition seems to be great.  The property is among 20 plus other 4 plex buildings, kind of like a town house community.

The problem is that the price is high and there is a really fat HOA fee for the building that I can't get out of, making the numbers tight. I am not sure if it is worth it.

NUMBERS

Cost - $575,000  (may not get much lower than that, maybe something off the top as I am an agent representing myself.)

HOA - $836 / mo ($209 per unit.)

Rents - $4095 / mo fully occupied  - ($1300, $975, $950, $870)

Total Expenses - $22506 (HOA, HOA assessment, PM, Insurance, Tax - all given to me by the owner)

Total Profit - $28,174 ($50,680 in rents - expenses above)

CAP RATE = $28,174 / $575,000 = 4.9%

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My VA loan is $0 Down

I will be close to $3000 a month for the loan + insurance

I will be $900 or $10000 out of pocket while LIVING THERE on one of the two chaper units - which is about the same as I pay now.

I will be at NO cash flow when I move out, but the rents will be paid down.

This property WOULD net about $750 a month IF I had money to put 30% down. = $9000 yr.  which would only be a 5% return on $174,000.

The HOA really screws this deal, doesn't it?

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I am not going to do this deal unless he comes down about $75,000.

What would you suggest I be looking for?  What do you successful investors look for in deals?

I am trying to START my investment portfolio.  I will NOT do a deal just because I WANT one.  I will only do one if the numbers make sense.

Thanks guys.

Jay

[Michael Hastings]

Hi @Jay Lalik,

I have read this over and would be happy to offer my opinion here.  First off, thank you for your service to this fine country.

In reviewing your statements at the end of your scenario explanation, I think that you asked a question which then answered your original conclusion.

Question in your summary was "What do you successful investors look for in deals?".  Your original conclusion was "I am not sure if it is worth it".  I think successful investors look for gains on their investments which are in line with their investment goals.  For example, I have a big chunk of UPS stock that pays a annual dividend yield of about 3-4%.  Is this a deal?  Many RE investors here would say "no", but the investment matched my goals (retirement income) and risk tolerance at the time.

I will admit that looking at these numbers, they are really tight for a long term rental, and while living there, there is some additional living expense to you to ensure the mortgage and all expenses are paid.  In my prior experience in real estate, before the crash on '07, I had a deal like this, owner-occupied that I took.  It made sense to me at the time because I was investing for equity gain, not long term buy and hold.  I figured that I would ride the wave of exponential equity growth in the early 2000's to get some money to find other buy and hold investments that made better long term investments when I sold the multi-family unit.  

What I did not account for was the management expense of my time to handle these units (as they were not hands off since I was self-managing), vacancies, damage to units and other unexpected capex costs (like a new AC for one unit) that almost took me under financially. I had to borrow against my equity via a HELOC to keep the ship afloat, and when the market decreased the prices and my inflated equity dried up...Well, let's just say it was not pretty.

So I can believe that you have done all your due diligence in outlining the numbers and analyzing the deal, and like you say, since you don't need to do a deal just because you want one, why not pass and continue to look for an investment that works for you financially and personally?

I am almost in the same boat as you as the prices in Denver have climbed dramatically and deals seem as though they are hiding.  But that is just it.  They are hiding and it is my job to learn how to uncover these deals through research, becoming a problem solver and beating a new path to sellers.

Good luck, I hope my words are helpful.