Trying to evaluate a Multi Family with a 50% vacancy

[Jon Campbell]

Hi everyone! New member and first time poster here! I recently bought my 1st SFH, rented it out and have jumped right into looking at a multi family 4-plex.

I am in a relatively small-mid sized area in central Illinois of about 20k population. The property I am looking at is listed at $60k. 2 units (#3 & #4) are currently rented at $325 and $250 ($575/mo). Unit #1, the tenants are moving out, and unit #2 is in the process of being renovated. 

As it stands, my monthly cashflow would be -$168/mo with a -10.27% CoC ROI.

If fully occupied (with an average rental of $350 per unit/mo x 4 Units) we are looking at $1400 a month, cashflow at $517/mo and a 31% CoC ROI.

My question is, how do you all factor in vacancy at time of purchase? How do you use vacancy in your equation for writing an offer? 

I have a rehab budget of $5k as the property itself is in pretty good shape, needing mostly cosmetic stuff (to the best of my knowledge). 

Even in the fully rented spreadsheet, with a 25% vacancy and an increased repair and maintenance and CapX amounts, the property still cashflows at $167/mo with a 10% CoC ROI. I know that comes in under the $100/door metric, but...

Do you like the deal? 

Seems like a good multi-family to get me in the game, but I am a stone cold rookie. I read BRRRR, did a flip, made $15k profit with a partner ($7.5k/ea), bought a SFH that is cash flowing $200/mo with a 7% CoC ROI (pre-refinance), listened to 15 of the bigger pockets podcast while I work my 12 hr shift in a frozen -10 degree warehouse, and am looking to hopefully make an offer on my 1st multi-family. This has all happened in about a month!

Am I moving too fast? Am I forgetting to factor other aspects into the multi family formula? 

Any help or opinions will be appreciated! 

Thanks! 

Jon

[Rj Lindemann]

Jon, @John Warren is absolutely correct. I live in southern Illinois in an area with a population of just 3,000 people and even a duplex in terrible shape will rent for $350 per unit, with higher end units going up into the $600 - 700 range. If i were you I'd do some more investigating into the market rents for the area. It's possible the previous owner didn't have a mortgage to pay and simply didn't ever see the need to increase his rents with the market.