What price would you offer for this 4plex?

[Ellie Narie]

I'm looking to buy a 4plex, and my realtor introduced me to an off market deal. The quad has 2/1 units, each renting at 900 a month, and one of them is empty (so perfect for a house hack). My market is very tight, I live in a small town on the west coast, and 4plexes come on the market rarely (and this one isn't even technically "on" the market). There was one 4plex that came on the market a couple months ago, that's literally on the same street as this one, with the same rents, and got 3 CASH offers of 500k.

But with the whole corona thing, surely I shouldn't be paying 500k here? What would be a good offer? I'd also be responsible for water/sewer/trash which adds an additional $350 per month of expenses on top of the mortgage. I hope to manage the property myself, and to use an FHA loan.

Help, what should I be offering to make house hacking work? The price wasn't specified, the owners want us to make them an offer,but it was hinted that they wanted somewhere along the lines of 450-500k. Should I offed 430k? Or less? What do you think?

[Carl Millsap]

@Ellie Narie here are a couple things to consider:

1. Some "off-market" deals are really deals i.e. lower than market price, and some "off-market" deals are just an opportunity to keep it from going to market you have to weigh the risk / price of letting it go to market.

2. In your case the comp says it's worth $500K. If the one up the street sold for $500k then the one you're looking at if it's close in age, amenities, rents etc. will be in the same ball park. That's the baseline.

3. Schedule a walk through of the units. What do they need? When were they last renovated? When was the roof, windows, HVAC units, and hot water heaters replaced? What other maintenance needs to be done? When was the parking lot last paved, sealed? Factor those repairs into your purchase price.

4. I don't think the market is going to reflect a recession for awhile so I wouldn't count on a lower price for that purpose, but you can negotiate a price you feel comfortable with. 

5. As for what you should offer....run your numbers, if you house hack will the $2700 cover the mortgage at $430k, $450K, $475K and other fees or will you still have to pay? If you don't house hack and get the the 4th unit ready to rent what does that do for your numbers? Run a few different scenarios, be conservative with your numbers i.e. if you house hack and 1 of the 3 units is empty or a tenant doesn't pay how will you make up the difference?

Is there an opportunity to raise the rent? If you improved (upgrade) the units could you generate another $50, $75 or $100 per month?

6. Offer what you think it's worth to you (what your numbers will support) all they can do is say no.