Any Multi Family Pro's willing to help a Newbie Out?

[Kyle Patrick]

I don't want to make this very long, so I will try to bullet this to keep it short.

-Newbie in Washington D.C. inspired by the idea of using an FHA loan to purchase multi-family while living in a unit.

-Found a 4 unit (each 1bed 1 bath) close to a metro stop in a pretty decent neighborhood

-3 units rented at market rate = $4,825

-units renovated in 2008

-Asking Price $999,999

-Taxes $4,184 a year

-FHA limit for fourplex in DC is $1.2 million

-Been on MLS for 90 days (according to zillow)

Question: Tried using the analysis tool but there are definetely numbers I have no idea. Any advice on how to do due diligence to ensure I am doing all I can to see if it's a deal?

I appreciate any and all feed back and thanks in advance!!

[Matt Lefebvre]

Doing even a basic "back-of-the-envelope" calculation, the numbers for this look really poor.

If your rents are $4825/month that gives you a Gross Annual Income of $58,020. Use the 50% rule for expenses and that puts your NOI at $29,010.

Now if you look at the cap rate, which is Net Operating Income divided by Purchase Price you get... $29,010 / $999,999 = 2.9%

A cap rate of 2.9% is incredibly low and just with that quick analysis, this really is not a good deal.  I usually recommend to my clients a minimum of 6% cap rate on a fully rented, completely turnkey property, and a minimum of 8% cap rate for something that requires renovation.  

Also, the 90 days on market should be a pretty good indicator that its not a good deal.  I do not work in a large metro area like DC and good deals go on and off the market in less than a week.  

If you have any more questions, feel free to reach out to me via PM!