Why is this not a good deal?

[Parul S.]

I'm trying to get better at gauging why certain properties have not been touched by buyers, and sit on the market for 9+ months.

I found a multi-family listed currently listed for $57,000, that has been on the market for the last 9 months, and reduced its price by ~2% every 3-4 months.

It consists of 4 units rented with $1350 total income. All units are 1bd, 1ba. Back 2 units rent for $300 front units rent for $375. 2 separate buildings - front 900 sq ft, back 2 are 576 sq ft.

My question - if the rental income is accurate, why is this still on the market even though it meets the 2% rule? Is it because of the pains of renting 4 separate units, implying more vacancies, more work/property manager fees to keep them rented?

Thank-you!

[Patrick L.]

A couple of reasons jump out at me.

First I hate dealing with super low value rentals and won't touch anything that rents for less than $500/unit. Anything below that isn't worth my time. The 50% rule will under shoot expenses in these type of units because typically you have MORE damage and things in a $300/month apartment cost the same to fix as a $900/month apartment. You'll also have a tough time finding a property manager willing to handle the property at 10% (because for $30/unit/month it isn't worth their time anymore than it's worth your time).

The other probable reason (as stated by others) is utilities. If the property is not separately metered for all utilities you're going to bleed cash on that, especially on low dollar rents. I won't touch properties that don't have individual power meters for each unit. Unfortunately in my city you can only have one water meter per parcel so on my multi's I'm stuck with a water/sewer/trash bill of about $60/month/unit which on sub $500/month units would be a huge percentage of the cash flow.