Deal Analysis 4-Plex in Colorado

[Lance Smith]

I have come across a possible first investment of a 4-plex located within 10-20 minutes of three military bases in Colorado. Please let me know what you think and if you have any advice.

The asking price is 225K but it's been on the market for 90 days so I wouldn't offer that. However, for calculations sake we will use it. The owner is in the military and is located outside of Colorado. I have talked to his agent and he indicated the owner had problems with the PM company he hired. They neglected maintenance and it seems increased his turnover rate. Currently 3 out of the 4 units are rented at a $550 a month each. All units are 2/1 with 769 sq ft so I can only assume the fourth unit can be rented at the same price. It sits on .2 acres and has 8 parking spaces. The rental terms state tenants pay for gas/electric and the owner pays for water/sewer/trash. Current annual taxes, according to MLS, are $885. I will note the current owner has performed a lot of repairs. Carpet/stoves in 2009. 4th unit got new w/d in 2010. 2 units got new flooring in kitchen in 2010. Pavement in parking area was sealed and painted in 2010. Something does interest me though, and I am little concerned. In 2013, in which Colorado had a 100-year flood, the owner installed flood prevention measures for $5,500 in the common area and performed flood repair/water mitigation in the fourth unit for $6,500. Part of the mitigation was cleaned carpet, new bath, drywall, mold prevention, and paint. It states the work in the common area and unit were FEMA supported. I can only assume this is why the fourth unit is vacant right now. Also, at this time I do not know the condition of the roof, hvac, or any other major components. I have only seen the MLS listing but the property does look well maintained in the listing. So with that said……..

Price (225,000)

Closing 5% (11,250)

However, I will be asking for seller to pay some or all of closing costs.

Gross Rents 26400

550 x 4 x 12

Vacancy 10% 2640

Leaves 23,760 in rental income

Maintenance 10% 2640

Leaves 21,120

Taxes 885

Leaves 20,235

Insurance 1300

Leaves 18,935

Utilities 3262

Leaves 15,673

NOI - $15,673

Cap Rate – 6.965

15,673/225,000

Cash flow

Mortgage terms 225K purchase with 20% down is $180,000 at 5% is 966 a month.

15,673/12 = $1306

1306-966

Cash flow $340 a month

$4080 a year

CoC – 9.6%

4080/ 45000

Would anyone consider this a viable option? If given the opportunity to invest in this property what would you consider an ideal purchase price? We will assume free is not an option. I'm currently trying to find comps in the area, which is hard to do because I don't have MLS access and it is a 4-plex. Also, I am in the process of analyzing the rental prices in the area to see if a rent increase would be possible. I guess another important thing to note is I am a Colorado agent on inactive status. I have been reading the forums on the pros and cons of being an agent. Reactivating my license could "save" 4-5k but I don't know if the RE fees would be worth it for one property. Of course…..more access could lead to more investing.