4 Plex under contract. What am I missing?

[Brian Tschida]

Have my second deal under contract, wanted to throw out some numbers and to see if I'm missing anything. Also the BP calculators are great but this one seems confusing to plug in.

Its a triplex that we are planning to convert to a 4 plex. Currently 2 units are rented at slightly below market rent. Going to keep those tenants to offset the mortgage. The other two will require some more work. We conservatively estimate the rents at (1300,1200,1100,1000) after the rehab.

Purchase Price 275k

Rehab 160k

Conservative Rent $4600

Conservative ARV 370k

For lending, looking at a two part loan (through 1 lender). Construction loan first at 4.5% (interest only, for up to 12 months). Then refinance into a permanent loan (depending on rates) 4.5-5% 30 yr fixed at 75% LTV. I have no problem leaving money in this deal and after accounting for cap x, repairs, vacancy, prop mgmt I have it cash flowing slightly under 400/unit.

What I am missing? What should I be asking? By no means am i trying to hit a home run, just shooting to get on base and aquire a cash flowing asset. Any insight would super helpful.

Brian

[Scott Mac]

Hi Brian,

Make sure zoning allows a 4 plex.

Make sure you have enough Amperage at the drop for another family.

Make sure you have the amount of parking you want to offer the market.

Make sure you have enough water coming in for 4, especially if it used to be a 1.

Make sure you don't downsize the 4 rental sq ft to be worst in the market vs having a very marketable 3 plex (re sq feet).

Make sure you do not trigger any added fire code things, such as requiring a fire escape or fire suppression systems, etc...

Find out If you will be required to now have a dumpster as a 4 plex, and where will it go.

Find out if the remodel will trigger any grandfathered items to be delt with, ei bring wiring to 2021 code for entire building, ditto heating and building thermal requirements, etc...

Find out if the lender is "On Board" with you "Restyling the Asset" in this manner they are lending on.

A 3 to a 4 is bigger scope job than putting in a new kitchen, and the lender may not consider it re-hab, meaning it might be to them, construction, and not allowed on the loan type you are seeking.

Good Luck!