Deal or no Deal (Multifamily)

[Rick Turman]

I was recently notified of a 4 Plex from my agent and the asking price is 105K. It is a 1/1 with full occupancy.  3/4 units are month to month as they are out of contract where another new tenant just signed on for a 12 month lease.  Owner pays for Gas, Electric and Water.

Monthly Income: $1,630
Expenses: ?
Utilities:  ?
Mortgage: around $430 for a 15 year or 219 for 30 year
Property Tax: $226
Repairs Exterior/Interior:  Not sure but needs it
Insurance: ? Part of LLC so Owner doesn't know

Owner is willing to deal as they are moving out of the state and want to slow down and pass off the property to someone else after 25 years.  Just by assessing what has been provided, I do not believe this will bring a positive amount of cash flow.  I applied the 2% rule to obtain a valid rent amount.  Most rent in this area of 1/1 is going as low as 330-500. 1 tenant is currently paying 525 the rest are in the 300's.  50% rule shows Cash Flow to be at ~$150, however that is just a guess as I  cannot speak for those that are in question above.  

I believe it is time to move onto the next property to evaluate.  Thoughts?  Thanks everyone!

All the best,

-Rick

[Ashley St. Gelais]

Hi @Rick Turman

I appreciate the idea behind the 'rules of thumb' that can be used to assess a deal, however I believe that you need to dig into the details for each and every investment before you decide if it is worth investigating further.

If he is trying to sell you the properties he should be willing to do the research to get you the numbers you need. Ask for his schedule c to see what he's reported to the government and call the utility companies yourself to see if they will give you an average cost monthly then multiply that by 12 for your annual costs.  

Remind him that this is a business decision and you need x,y and z to analyze the opportunity.

Lastly, if he is willing to negotiate it may not be worth walking away from at this time...

Hope this helps!

A : )