Two 4-Plexes

[Mark S.]

I'm currently analyzing the two 4-plexes below. Even if they both check out, I will buy one or the other, not both.

FOUR-PLEX #1 - $125,000
All heating units less than 7 yrs old. Roof replaced 5 yrs ago.
All units are 2BR/1BA and about 800 sq ft. 75% occupied.
Not sure why they're different, but rents are said to be:
Unit 1: $425
Unit 2: $425
Unit 3: $350
Unit 4: $375
Rentometer shows median rent at $630 and 10th percentile at $450. I should be able to raise rents, but let's just go with these for now.

Gross Rents: $1,575/month
EXPENSES:
Vacancy (at 8%): $126/mo
Taxes: $121/mo
Insurance: $117/mo (I totally guessed on this and need to shop it out)
Prop Mgmt: $145/mo (10% only when occupied)
Repairs/Maintenance (at 10%): $158/mo
Cap-Ex/Reserves (at 10%): $158/mo
- TOTAL EXPENSES: $825/mo (which is about 52%).
- Debt Service (20% down, 5% interest, 30 year loan): $537/mo
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Cashflow: $213/month (assuming I buy at asking price and don't raise rents).
Cashflow: $398/month (assuming I buy at $115,000 and raise rents to $450)
This one seems to have HUGE upside with raising rents. I'm much more excited about this one than #2.
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FOUR-PLEX #2 - $148,000
Has new roof. 50% occupied. All units are 2BR/1BA and about 800 sq ft.
Rents are $450/unit.
Gross Rents: $1,800/month
EXPENSES:
Vacancy (at 8%): $144/mo
Taxes: $144/mo
Insurance: $117/mo (Again, total guess. Need to shop it out.)
Prop Mgmt: $166/mo (10% only when occupied)
Repairs/Maintenance (at 10%): $180/mo
Cap-Ex/Reserves (at 10%): $180/mo
- TOTAL EXPENSES: $931/mo (also about 52%)
- Debt Service (20% down, 5% interest, 30 year loan): $636/mo
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Cashflow: $233/month (assuming I buy at asking price)
I'm not thrilled at all about this one, however, if I change the purchasing price to about $115,000, I get a cashflow in the $376 - $406/month range.


BOTH AREAS SEEM TO BE "C" CLASS NEIGHBORHOODS, AT BEST. IN PROCESS OF FURTHER RESEARCHING THE AREAS.

Thoughts?

[Al Ciampi]

I know what a "C" Class building is but I assume a "C" Class neighborhood is a low income area. Forget the ghettos. Look for areas of strong employment, good schools and low crime rates. Even if the price is low you will have problems keeping good tenants under these conditions. Also whenever I am looking to buy a property I visit the property at all hours of the day. For example....go there in the morning about 9 AM. Are there cars still in the parking lot? If so that may mean that the current tenants are unemployed. Go back to the property Friday night around 10PM. Any people coming and going? Drug or possible unsavory activity?

If the neighborhood is low income, and many are, the area may still be OK. Are the tenants employed? Is the neighborhood quiet? Stop and ask neighbors and the renters themselves how they feel. Check with a local cop who knows the area. Also you must have all the expense numbers. Ask for IRS Schedule "E" for the last three years before you make an offer. If they will not provide you with one move on. Always make your offer based upon actual (Not projected) occupancy and income/expenses....then discount your initial offer by 20%. You will be surprised how many property owners just want to get out of the investment.