Buying a Quadplex without a real estate brokerage? Pros vs Cons

Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes

Hello,

I found a quadplex fully rented for $2,400 monthly. The ask is $175,000. The seller is selling himself. I rather not pay the 3% commission either.

I have never done this before. Any advice for or against doing this transaction?

Thank you,
Amir

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Chris MasonPro Member

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Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes

Quote from @Amir B.:

Hello,

I found a quadplex fully rented for $2,400 monthly. The ask is $175,000. The seller is selling himself. I rather not pay the 3% commission either.

I have never done this before. Any advice for or against doing this transaction?

Thank you,
Amir

Hi Amir,

Find a real estate lawyer if you don't want hand holding, and find a realtor if you want hand holding.

You will be able to save a few bucks by not having someone else choose escrow for you.

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Larry Turowski
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
4y
@Amir B. Off market deal. Every investor wants those. Even though the seller pays the realtor, not you, you don't want to bring a buyer agent in as that will add a cost to the seller, which they may then pass to you. There isn't enough information to say if it is a good deal. Cash-flow-wise, it looks promising, but it may need a ton of repairs, or may be in an area where it simply isn't worth that much. You have to do your analysis.
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
The seller doesn't have a brokerage either.
I will post the numbers shortly.
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Michael KusyBusiness Member
Real Estate Broker · CT and MA · Member since 2021 · 26 posts · 16 votes
4y
Find a Realtor who will do it for less. I guarantee you can find someone to handle the transaction for you. I would definitely do it if this was my market.
[email protected]860-402-5872
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Jarrod Kohl
Boston, MA · Member since 2017 · 209 posts · 126 votes
4y
Quote from @Michael Kusy:

Find a Realtor who will do it for less. I guarantee you can find someone to handle the transaction for you. I would definitely do it if this was my market.
Yes, as a broker I’ve done “transaction” deals where two people just want to make sure someone else knows what paperwork needs to be done and it is cheaper than having a full listing.

orherwise, just make sure you have everything in order and do it yourself. (Not recommended if it is either paties first deal)
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
4y
Quote from @Amir B.:

Hello,
I found a quadplex fully rented for $2,400 monthly. The ask is $175,000. The seller is selling himself. I rather not pay the 3% commission either.
I have never done this before. Any advice for or against doing this transaction?

Thank you,
Amir

Hi Amir,
Find a real estate lawyer if you don't want hand holding, and find a realtor if you want hand holding.
You will be able to save a few bucks by not having someone else choose escrow for you.
2 Reply
Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
@Larry Turowski
Purchase price: $175K
Down payment: 20%
Current rents: $600 each unit=$2400
Taxes: $4343
Insurance: $745
Interest rate: 5.50%
Repairs needed: Unknown
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y

@Chris Mason
Yes, I was thinking of that.
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
Seller has done it before.
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David Lee Hall, III
Rental Property Investor · Pittsburgh, PA · Member since 2019 · 530 posts · 511 votes
4y
Quote from @Amir B.:

Seller has done it before.

All the more reason for you to find a closing attorney.

As someone that only ever wants to use his own contracts - the reason is simple, I wrote them with my lawyer to make sure I have all the contingencies I need as a professional buyer. Additionally you are buying something as-is and don’t know the repairs.

Currently you are at $2400*12 gross annual.

That is $28,800

Minus 15% property management fee (rough estimate 10% plus leasing fees and renewal fees): 4,320

Minus taxes: $4343

Minus Insurance: $745

Minus OpEx (10% estimate): $2,880

That leaves you $16,512 net or $1,376/mo.

From this you have $344 per month door.

But there are 3 numbers not included here. First is capex savings. You need to save for furnaces, roofing, etc. The mortgage payments need to come out as well. I have no idea what the amortization period is to calculate this. Finally, and the first number you need to start with, is profit first. What is your per door amount you want to pay yourself.

At first glance this looks very skinny.

You could have a little more margin if you have value add opportunities such as rehab to move rents up a few hundred or you self manage, in which case you could pay yourself the management fee (keep in mind that you are locking yourself into low return if you remove this number from calculating because then you would never be able to hire a PM and still pay yourself if the number with PM included is low or negative).
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4y
@Amir B. how do you KNOW the tenants are performing?
Are you having the building professionally inspected?
[email protected]248-209-6824
Logical Property Management4.9459 Reviews
Website View Page
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Jarrod Kohl
Boston, MA · Member since 2017 · 209 posts · 126 votes
4y
Just had another thought on this:
Are you self managing?
If not, you could probably find a property manager who is also a broker and they would im sure help with the deal very cheaply to get the management contract.
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
@Jarrod Kohlyes, possibly.
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
@Drew Sygiti don't know that. I will ask.
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Amir B.
OP
Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
4y
@David Lee Hall, III
Hi David,
Does the deal make more sense if I put down 25% instead? I'm still learning how to calculate profits. The seller hasn't disclosed the repairs needed.
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David Lee Hall, III
Rental Property Investor · Pittsburgh, PA · Member since 2019 · 530 posts · 511 votes
4y
Quote from @Amir B.:

@David Lee Hall, III
Hi David,
Does the deal make more sense if I put down 25% instead? I'm still learning how to calculate profits. The seller hasn't disclosed the repairs needed.
Not really. You aren’t changing monthly payments by much. Sure it would help a little but the limitations are in the income level. If you are only clearing $1000 a month give or take, what happens when you have to replace 4 furnaces in 2 years ($16,000 right there) or the roof a year later (probably another $12,000 give or take). Even tenant turnover could be an issue if a tenant trashes a place it could take an entire year of profit to get another tenant in there.

The good news is if you are financially stable and have an extra $25,000 or so in the bank as reserves, it should be a fairly safe deal to be a first time one to learn the ropes. It wouldn’t surprise me if you don’t make any money at the end of 10 years aside from equity capture on the loan payoff.

a quick comparison:
I have a SFH at $635/mo. Insurance is about $65/mo. Taxes $150/mo. Mortgage $210/mo.
on the surface, great, I am cash flowing $210/mo! Wrong. I was using a property manager- it was $90/mo. (I since fired them and do it myself.) But of, the sewer failed - $13,000 on that repair. That is 7 years just to get back to $0 due to the limited cash flow. Opps, termites in the porch, another $5,000. Adjacent pine tree died and was starting to lean, $1,700. Smoke in the house, fire department called, oops they plugged half a dozen extension cords together and melted a circuit: $1,200 and damn lucky. Furnace died $1,700. I have had the property 8 years. Have had 0 vacancy and 2 months late with fees paid when they were late. They started at $500/mo when I bought it and I slowly have raised rates but since they haven’t moved I haven’t tried to kick them out and remodel to improve rents. I should be back to even sometime late this decade.

You are basically buying a 4 unit version of my one house. Sure, it can cash flow, but you need to ask yourself if you are willing to deal with the issues that come with a low income property. Many investors I work with have sworn off places that don’t pull over $1,000/mo gross unless it is larger multi family wear economies of scale come into play. Great - that means I can get the $800 units without competition and at a lower price. But I offset that by driving a pickup that is 20myearsvold and probably has tools more valuable than it is inside so I can do my own repairs and turnover. If you expect to call a contractor every time a faucet leaks or you need vinyl flooring, that price point likely is going to leave a bad taste in your mouth.
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