Which market for high cash flow on a fourplex?

Question

Hello, BP!

I'm looking for my very first deal. I want to househack a fourplex and generate as much cash-flow as possible using an FHA loan with 3.5% down. I have a job where I work from home and I'm willing to move anywhere in the country where I can maximize the cash-flow on my first purchase. My main question is: which market would YOU choose to invest into if you wanted to maximize cash flow on a Fourplex with a low down payment?

As a side question, I would really love to hear what kind of cash-flow folks think can be achieved with a single fourplex. Is it pie in the sky to think that I can hit $1,500/month on a single fourplex? How much do you think I should hope to cashflow?

Thanks everyone!!!

Marcus Auerbach · Answer

@Jacob Dinkins - yes, it's a pie in the sky. Milwaukee is probably one of the better markets for cash flow and most local investors will agree that net $200 per door is probably realistic.

The classic newbie mistake is to not understand capex, so it will be ignored (underestimated) for a few years and builds up quietly and unnoticed until the unassuming owner gets hit with a combination of large repairs and extended vacancies all at the same time.

FHA loans have two problems - they are very unpopular with sellers due to the FHA inspection (part of the FHA appraisal) and the following repair requirements to the seller. Typically FHA buyers are limted to less than great deals and more motivated sellers.

Low down payment also means higher debt service - eating further into your cash flow.

Newbie mistake #2 is to buy in a D-class area, not understanding the consequences. I admire the can-do attitude, but I have seen too many people try and get emotionally so worn down that it becomes their life goal to ditch the property. They are willing to sell at a loss if necessary to the next fool. There is a reason why investors who have already made a few bucks and are highly motivated to buy will absolutley stay clear of D-class neighborhoods.

Let's say you fourplex can net $800 after (snow removal, landsccaping, other expenses, repairs, capex, leasing expenses and vacancies  etc) in cash flow if fully occupied; as soon as you move in that number goes down to $600. If your rent is $800 (of which $200 is profit) your 3 remaining tenants will pay for your rent and you break even - $1500 short of your goal.

Adam Poshka · Answer

I think there are probably multiple markets that you could obtain your goal, but just remember, higher cash flows usually mean rougher areas. Personally I would sacrifice some cash flow to live in an area that I wanted to be in. I know in Tampa you are not going to find a 4plex in the 200's. Possibly in Lakeland, but again it is a less desirable area. I would be happy to talk Tampa with you anytime.

Marcello Oliveri · Answer

@Adam Poshka

Good day Adam. I was wondering if you could share what city and state your property is located in that makes $1000 a month in cashflow? I am also trying to find a quad that gives me about a $1000 -$1500 a month return. Any advice would be appreciated🤙

Christa S Rickard · Answer

I have yet to buy my first property, but I live in Tampa and I've been looking in the Tampa and Lakeland areas. What everyone is told you thus far is correct. You are not going to find a quad in the 200s. If they existed, I already would have bought them! I did look at some duplexes in Lakeland that were listed in the mid 100s, but they were all in really bad areas.

Rick Stout · Answer

@Jacob Dinkins Which realtors in FL are telling you that you can get a quad in Tampa for 200-250k? I find that number to be way off. You could possibly get a Small duplex (less than 2,000 sq ft) for the 200k range. I would look into that as a house hack if you don't have much to put down, offset your mortgage and save most of your income for the next (Bigger) purchase in the next year.  Quads in Tampa seem to be in the 400k range minimum. Unless you're finding off-market properties that need significant work, or D neighborhoods like Sulpher Springs.

David de Luna · Answer

Dream on, brother. It's how the journey to financial independence starts. I will stop asking "What if" on my deathbed. Don't forget that someday the question could legitimately be "What if... I sold it all, stuck it in a Fidelity account and tell my wife to book us flight to you-pick-where." Don't let your "what ifs" only be about money or real estate.

David de Luna · Answer

Curious to hear others chime in on markets but the answer to the cash flow question will be come from the answer to the market question. Even then it won't be a simple answer. I have 2/1 houses that fetch $700 and 1 bed apartments that fetch $700 in the same city.

Your idea is just fine, but before you blow your wad, widen your vision to other ways to generate profit. Do simulations on different methods - turn keys, SFRs, BRRRR, etc. You may discover other ways to deploy that much capital that could throw off even more cash, if max cash is your only focus. Peace of mind also will drive your focus.

Rick Stout · Answer

@Jacob Dinkins Have you been able to locate the residential multifamily property you were looking for? We engaged on this thread about 1 year ago, wanted to check in on you.

Jonathan Hehn · Answer

@Jacob Dinkins Hi Jacob, in regards to a better realtor. I find that finding your own properties and reaching out directly to the listing agent can impact responses. They are more motivated to make the deal work because they get double the commission. Even a low offer will be more seriously considered. This may not be allowed in every state.

Brian Garlington · Answer

Not sure that the market matters Jacob because with an FHA loan you need to owner occupy the residence for at least one year.

Which market for high cash flow on a fourplex?

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