First 4 plex offer/conservative analysis

[Hao Kung]

Hi, I made my first offer on a 4x plex recently in las vegas. Its an older home built in the early 1970's with 4x3bd. I want to be fairly conservative with my analysis since I want a fairly big margin of safety.

Rents: $600x4 = $2400/mo = $28800/year (Rents look closer to $650/mo, but I"ll use $600 to be safe)

Expenses: Power/Gas are separately metered, but I just used 60% instead of the 50% rule for total expenses, and I will also be using property mgmt that will take around 8% off the top.

NOI: $28800 x . 4 = $11520

So if I were to target 8% cap rate using these numbers, I get a valuation of $144,000.

Does that sound like a reasonable analysis? Is 60% expenses conservative enough?

[Joel Owens]

Is the 4 plex properly zoned and permitted?? Make sure of that before you proceed with anything else. If after you buy you are not allowed to have the property function for your intended use then it could kill your investment.

What about the water do you pay that as a landlord?? Water is the big one.

If so 28,800 X.60 = 17,280 ............. 28,800 - 17,280=11,520

Your 8 cap would be in the range you have suggested.

Now the .60 is for ONGOING maintenance and repairs and expenses. It is NOT for a bunch of deferred maintenance going in to get them rent ready. If you found before buying that all windows needed immediate replacement then you would deduct say 20,000 as CAPEX of the price and arrive at 122,000 for a purchase price.

The big ticket repair items that have been deferred where the seller has sucked out all of the cash flow over the years you have to make the seller pay for that in a price reduction. The seller can't take all the cash flow over the years and then dump delayed repairs on you that will kill your returns for years and get a market premium price.

Pay special attention to all the mechanicals, condition of the kitchens and baths etc. as those take a ton of money to fix and repair. The old solid wood kitchen cabinets and bathroom cabinets are actually way, way better then that pressed board crap they make these days for rentals. Those do not stand up to abuse much at all. The old cabinets that are solid wood is just like real wood floors in that you can keep reconditioning over and over again.