Need Help Evaluating a 4 Plex

[Dean I.]

I know, I know, use the search bar . . .  and I will, but I was hoping to get some fast advice while I do, since I will be putting in an offer tomorrow.

This is a Quadplex building in subdivision of other 8 or 10 other Quadplex buildings. Basically, it is an apartment complex, but I am only looking at buying one of the buildings (it is the only one available right now). So far, it satisfies the 1% and the 50% rule, which I know only means that it is worth crunching the numbers more. My plan is to purchase the building, rehab it and do some upgrades, then refinance it and get all of my money back out of it. The problem is, I don't know what it would appraise for. From my understanding, since it is only 4 units, it is looked at like a residential property. The problem is, there is barely anything to compare it to. So how do I figure out a value for the building? I need to know what I can expect to refinance it for after the rehab.

I should also note that I am putting this one under my personal name in order to take advantage of the 30 year mortgage. I also don't plan on living in one of the units. Not sure what all the rules are on all that. This would be my first rental property purchase.

Thanks in advance.

[Jack P.]

@Dean I.,

I own 3 quads in a similar development.  It's kind of a neat environment, like a co-op apartment complex, depending on the other owners and their goals.  Either way, here's what you need to know:

-Figure out the HOA rules and responsibilities. In a community like this, all of the tenants are renting, but the owners are responsible for abiding by the rules of the HOA. If the affiliation isn't very strong, conflict resolution becomes a problem.

-For the value of the building, either check the tax records (some municipalities make it easy to access via an open website) for purchase prices, or use a website like zillow or realtor.com to see the sale prices of the surrounding buildings.  The appraiser is going to pull those comps, so it helps if you already have an idea of what similar quads sold for on your same street.

-Keep in mind that since the buildings are individually owned, even though they look exactly the same from the outside, their maintenance can vary drastically.  For example, I purchased one of mine for $175k, and a month later the same floorplan a few houses down was listed at $280k.  It wasn't worth nearly that amount, but I think they found a buyer in the $250k range (still way overpriced for its condition and rents).  

-Check the rents of the surrounding units to bounce off your proposed rents using the same websites.  If you play around with it, zillow caches old rental listings.  Your rents may be higher or lower than surrounding units, which should tell you something.  

-Your refi amount will be again tied to the comps in the area.  If you buy at the highest historical prices for the development, there's no room for improvement, no matter how much money you dump into it.  That's kind of the downfall about those developments is there isn't really any room for growth, unless you score an amazing purchase price.  One of the buildings in my development sold for $130k (same floorplan as listed above) because the owner had liquidated her whole inventory, and that was the last building.  The rest of us bought as steady, proven cash flow, with maybe a little wiggle room for some cash-out.  Basically, if you purchase at the median price, then you probably won't be able to pull any additional money out.

-You don't have to live in one of the units, but make sure your lender knows it's an investment property...and you'll have to put 25% down.  

Let me know if you have any other questions.