4-unit apartment building.. Good deal or no?

Question

This building would be my first property and I would be living in it as well. The listing price is 194,000. 
4 unit 1 bed 1 full 0 half 0 1/4.  750 sqft each

est age 53 years

Neighborhood isn't that great. Kinda hoodish but not terrible.

Est taxes for 2011/3,209.

The apartments are already rented and each apartment rents for around 580.

If nothing needs updating is this a good deal?
What would be deal breakers?
thanks in advance for inputs!
Any other advice is welcome!

Raymond B. · Answer

Alex Henriksen,
You asked how do you "make a name turn blue?"
Hold down the shift bar, type in the first 2 letters of the first or last name, that you're trying to "turn blue."
Look at the bottom, where you're typing, and you will see a list of names. 
Click on the name.

Raymond

Alex Henriksen · Answer

So the only way to make this a good deal is to low ball it by around 80k and hope they counter with a lower offer.Then get the place for around 140k to 150k. Raise rents enough so that it covers the 2% and 50% rule.

George P. · Answer

doesn't look like a deal unless you can obtain seller financing it @ 0%. Who pays for utilities?

Alex Henriksen · Answer

Thanks for your response Sam W. How do you guys turn names blue?? lol The building will be owner occupied for the first several years. So how does that change the math around?

Alex Henriksen · Answer

@Adam Demchik Thanks for your response! I know what your saying but in my market anything thats on the mls is going to make the 2% rule impossible. Maybe I can pull a 1.3%  and once I move out I can push it higher. Also rents go up each year in my area by around 3% to 6%. With the rents going up each year like that I would be able to hit the 2% in several years I'm guessing. Does the 2% rule even consider annual rent raises?  Don't forget this place will be my home for several years as well. Right now I currently rent and I pay 720/ mo. So I'm most likely going to put most of that into the property.

Sam W. · Answer

Alex Henriksen

Some quick napkin math using the 50% rule:

Assumptions:

Selling price $194K
Financing:  Non owner occupied, 25%down, 5%, 30 year
Monthly PI = $781
Tenants pay all utilities
No big capital expenditures needed.

Expenses = Gross rent *.5 = $2320 x .5 = 1160
This leaves $1160 each month to pay your mortgage (PI), utilities, and yourself.

Cash flow = $1160 - Mortgage = $1160 - 781 = $379/month.  A little tight in my book for a 4-unit.
Cash on cash return =  9.3%

If you managed the properties yourself you could use the 40% rule and your cashflow could be $1392 - $781 = $611.  Much better
Cash on cash return = 15.1%

Basically comes down to what your desired returns are and comfort level regarding managing the property yourself.

Good luck.

Sam

Adam Demchik · Answer

Assuming that you have 4 units all rented at $580 per month, using the 2% rule I wouldn't pay more than 116,000.  That being said some markets do not work with the 2% rule so you may have to budge a bit on it, but 194,000 is pretty far from 116,000.

4-unit apartment building.. Good deal or no?

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