First Deal! - 4 Plex Break Down

[Nickolas Burns]

Hey Guys, 

I will be breaking down my deal in Sioux Falls, SD that I am currently under contract for and would love some advice/opinions while I am in my due diligence period. 

Price - 235,000 - 3% from seller towards closing

Property Type - Multi Family

Year Built - 1949

Units - 4 units

Bed/Bath- 2 bed/1 bath per unit

Sqft - 500 per unit - 2000 total

Recent capital improvements-
- 2018
Unit 3: New fridge, window, vanity and toilet
- 2017
Unit 1: New deck, AC, washer and dryer, baseboard heaters,
kitchen faucet
Unit 2: New deck, AC, window, baseboard heaters
Unit 3: New paint, carpet, trim, fixtures, baseboard heaters
Updated landscaping
- 2016
Unit 2: New fridge, stove, toilet, vanity, tiled shower, paint
carpet, trim, fixtures
Unit 4: New tile flooring, bathroom sink faucet, kitchen
faucet, paint, trim, baseboard heaters, AC and fixtures

New roof

How I will be funding it?

I will be using an FHA loan combined with South Dakota Housing which will cover my down payment and I will have to repay my down payment if I refinance or sell the property. Sellers 3% towards closing.

Income Breakdown

Unit 1 - Lease Ends in November of 2020, 

Unit 2 - Lease ends in 2 years

Unit 3 - Lived there for 8 + years

Unit 4 - Lease ends soon - I will then move in once my college semester is over. 

Total Income/Month = $2420

Minus the $575 once I move in but I will have a roommate who will pay 200 + half the electric so I would subtract $375 from $2420 =  $2045

Expense Break down:

PITI = $1447.62

Tenants pay Electric,Cable, and Internet 

I pay water which at most is $180/m

Lawn = $50/m

Snow = $100/m

Garbage = $50/m

Electricity for my room =$50/m

Total cost = 1877.62

Income - Expenses = +$167.38/month plus I would live for free

I have an inspector going through the property tomorrow and am heavily considering having the plumbing checked out due to it being an older property and would love advice on this. 

Rents have the possibility to all go to $650/month once leases are up. Cash to get into the deal is less than 3k with a MCC credit plus SD housing covering the down payments and 3% from the seller. 

Questions- What do you think of the deal? What else should I be considering? What other problems may I have that the inspector may not consider? Drop any questions that you may have that I missed their is a lot a missed but vacancy is low and I will be getting a bank statement from the seller to confirm rental income. I do plan to move out after my first year and claim the rest of the income that I am missing by living there. 

[Nickolas Burns]

@Jennifer T. 

 @Vince Mathis

@Brian Goodling

@Benjamin Aaker

Update :

So I ran through the property with an inspector and I also viewed all of the units. I will say I am not as confident about the property as I used to be and am considered pulling out. 

With the size and the clutter of the units from the tenants already living there it is apparent that the people living their do not take care of the units very well. The unit I saw when viewing the property was definitely the best unit as far as quality and clutter. 

1. Most of the kitchens are much older and in one case the cabinets are all ready to fall off of the wall. 

2. One tenant's unit is very apparent that a lot of weed is smoked in the unit which is illegal in SD so I dont have much experience with that. 

3. 3 of the 4 units ranges are older and look like they could need to be replaced soon

4. 3 of the 4 refrigerators look like they need to be replaced. 

5. The two water heaters are 16 and 17 years old which is well past life expectancy. 

6.  The overall quality of living for two people is going to be poor. This looks like a great deal for a flipper and re renting the rooms at a higher price. 

7. The 3/4 tenants could prove to be an issue 

8. On almost every window seal is cracked which lets in condensation between each. 

I would be able to have better situation renting by the room in town but you cannot have more than 3 non related individuals living in a property which would be an issue as far as cash flow but appreciation would be better.

I wouldn't want live in this small of a property at this quality and I know the individual who wants to live with me wouldn't either. Am I looking too much at how the current tenants are taking care of the property or should I suck it up and live there, renegotiate the contract or should I pull out and try and find better places? I know it is up to me but I would like some advice.