What To Offer On An 8-Plex

[Jeff Russell]

Hello. I don't know how much to offer on a multi-family property I am interested in. It is 32 years old and has 8 units, which are 1,218 sf. each. They are currently renting for $565. and the interiors are not too old. They look really decent and fairly updated. They want $45,000./unit. It is not in a flood plain. How much could I raise the rents next year, if I do get it and the bigger, more important question is: how much should I offer, below the asking price? The roof looks to be in good shape and it has a brick exterior. Not sure what else to mention. I, of course, will have any offer I make contingent upon a satisfactory inspection and an appraisal. Would 10% off the asking price be too much? It has been on the market for 152 days. What say you all? Thanks for any help you all can give me.

Best regards,

Jeff

[Andrew Johnson]

@Jeff Russell So just a couple of things to think about:

1.) 32 years is right in between a 30-35 year roof expectancy.  Roof replacements aren't cheap and it's not that easy to see all of the wear and tear from the outside.  Unless you know when it was replaced, I'd assume it's at the end of life.  Who knows, just don't underestimate the expense.

2.) $565 seems pretty low to me for a 1,200 sq ft unit.  It's low for a 1 bedroom/1 bath unit.  All sorts of hiccups and issues come with renting to tenants at this price point.

3.) You also have to think that in a sizable unit (1,200 sq ft) you're going get a few people.  Generally, in 8-plexes you're paying for at least water when it comes to utilities.  More people means more water usage.  It also means more wear-and-tear on the units.  

4.) Combining 2 & 3: You'll end up spending a disproportionate amount of your gross rents keeping up and maintaining these 1,200 sq ft units.  A tenant sees a large apartment, you'll see 1,200 sq ft of flooring!  A tenant sees a good amount of square feet for mom, dad, and two kids.  You see a big ol' water bill.

5.) Short of properties sitting in a rural area that investors don't have interest in I have a hard time seeing why something would be on the market for 6 months during (arguably) the best real estate market of our time.  Other investors are seeing something that you're not.  

If you haven't already, see if they have financials for the past 12 months.  You want to get a handle on the utility bills, if the owner pays anything for trash, etc.  You also want to get a sense for collected rents.  A rent roll doesn't usually highlight who is behind on their rent, which units (if any) had an eviction last year, etc.  It's not uncommon for lower-rent properties to have a material difference between projected gross rents and collected rents.  

Just some food for thought, for all I know it could be an awesome property.