Philadelphia 2-4 Unit Frustration!

[Marc Izquierdo]

Hi everyone,

Over the last two months, I've been working with a realtor and looking at 2-4 unit multi-family properties in Northeast Philadelphia on the MLS. I plan to house hack (live in one unit, rent the other(s)) but always look at the property as an investment first (not owner occupied). I've been using the income method to value the properties but after analysis, I would end up needing to offer almost 30-40% less than the list price just to break even or make even $50 per door per month. That is even with old out of date properties!

I recently had a 4-plex I was looking at that was listed at $389k.  After analysis, I would have to offer around $200k just to only lose $100 per month (very low rents plus a lot of landlord expenses).  After playing around with the numbers to try to understand where the $389k list price came from, I believe the owner is basing that price on an income stream with no budgeting (maintenance, vacancy, cap ex, property management, etc) and purchased in all cash (which reflects their situation - fully paid off).  This is just one example (and the most extreme I've encountered), but I'm starting to think that that's how all of these 2-4 units are priced.

So now I'm starting rethink my investment strategy because it seems extremely difficult to try to have a 2-4 unit cash flow.  I've done some research and learned that 2-4 units are more heavily valued on comps versus income.  What do you think?  Should I be looking at these properties as homes based on comps (like single families)?  Who buys a 2-4 unit property that doesn't cash flow?  I thought that was the point of them?  You're paying for an income stream but the income stream doesn't seem to exist.  I'm very confused with these properties and am looking for any advice from other Philadelphia investors, or even investors in other areas having the same issue.

For information:

My analysis has used the following inputs:

10% vacancy

11% property management

5% maintenance

10% cap ex

0.5% collection loss

Thanks in advance for the advice