First Time Home Buyer (4-Plex)

[Steven Kim]

Hello, 

I am trying to purchase my first investment property which is a 4-plex. The listed price is 690000. After contacting the listing agent 2 units are a month to month term and the other 2 are year long terms. 3 units are going for 1780 and one unit is going for 2480. All units are 2 bed and 2.5 bath. The owner pays for all the bills currently 575 per unit, which include water, electricity, internet, and cable. It is fully furnished but a little dated. Taxes a little over 11000 annually and insurance was about 2800. No Hoa. I was trying to see if the advanced investors can give me their input and some advice. I would be moving away from the area this property is in, in a couple months but will 3 hours away. I plan to manage it myself. Please let me know if you need additional information to run numbers to help out! Thank you for your time! 

[J Leman]

Couple things:

1) If all units are 2 bed 2.5 bath - why is one unit so much higher in rent? Could you bring the other units that high

2) $575 per unit per month is hefty for utilities and will really eat at cash flow. Any way you could "Meter" out the units to put utilities in their name?

[Nicholas L.]

@Steven Kim

lots to think about with this one.

-you will self manage from 3 hours away?  not to say that can't be done, but you'll need a strong team, i doubt you will personally drive there to fix a dishwasher?  i could see this being a huge pain.

-you will be very, very negative on a monthly basis if you continue to pay for the utilities.

-how much are you putting down??  i would not put >$100K into something just to be cash flow negative every month (unless you have hundreds of thousands of dollars just lying around that you have no idea what to do with) 

[Steven Kim]

1) All of the spaces are the same and the one unit is higher in rent because it was a month to month and the owner raised the price because it was a travel nurse and was on a month to month lease. 

2) The owner is saying I could easily bring the prices up to 2150-2250 per unit and keep it at long term leases to make it easier to manage. 
If this was the case, I would pay with the numbers so I would have the units pay the utilities. But would need some guidance on this part.

3) It is my first property, would not like to pay the 

10% for property manager. So would be beneficial to find a contract for maintenance? If so, what is the avg on that?

4) I will be putting nothing down, I will be using the VA loan for the purchase.

Thank you for your insights and your time! 

[Nicholas L.]

@Steven Kim

-"the owner is saying..." - irrelevant.  check with an expert on market rents.  owners opinion is irrelevant / valueless.

-the tenants likely can't or won't pay the utilities.  think about what you're saying - you're going to increase the price they're paying $900+ a month??  not happening.

-if it's a VA loan... don't you need to live there? i'm neither a lender nor an expert in VA loans, but i thought this was the case.

-you can't self manage just because you don't feel like paying a PM... you need a plan, a network.

[Steven Kim]

Thank you for your insight. I will definitely take it into consideration. I will do more market researching and I did not mean I was gonna raise the price and not pay the utilities. I was just mentioning that's what it could be brought up too but I wanted to play around with the numbers to see if there was a different number so I didn't need to pay the utilities. Even if it was significantly lower. Yes, I will be using the VA. I will be living in the area but moving to another area for a job and can move back and forth when needed. Yes, I was trying to avoid the use of PM and that was why I was seeking some guidance and to see if it was even possible from people with more experience. I apologize if that seemed inappropriate to mention. I am entirely new and was only seeking advice.

[Nicholas L.]

@Steven Kim

not at all inappropriate, and i am glad you brought it up.  i am just trying to be candid with you.  there is a lot of sugarcoating of the challenges of real estate going on these days.  buy wrong and you end up like these folks

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/610/topics/990055-disas...

https://www.biggerpockets.com/forums/48/topics/1160450-run-i...

[Steven Kim]

I really do appreciate you not sugarcoating. I’d rather have the hard truth than a sweet lie. I am always trying to learn and my way of learning is seeking information like this! As of right now, the numbers look great but since I am so new to this, I wanted to see if there were any factors I might come across in the future that may not be on internet or Reddit. Once again thank you for your time and insight! 

[Dave Skow]

@Steven Kim- make sure you have a pre approval in place from a lender for the amount needed ..likely will need  the down payment to be  25% of the purchase price 

[Michael Smythe]

@Steven Kim talk to a lender and an attorney, but to use a VA loan you MUST occupy one of the units for the first 12 months of the loan, or its mortgage fraud.

Find it hard to believe the owner found a traveling nurse willing to pay $700 / 39% higher rent for month-to-month lease. More likely, the owner furnished the unit to get that much rent. 

What comparable rentals have you looked at YOURSELF to validate how much rents are going for in the area, so YOU know what you can raise them to?

You contacted the listing agent, who legally works for the seller and must look out for only the seller - not you. So, why would you believe anything they say and not verify yourself?

Your plan seems to be over-simplified and has many holes in it.

[Dave Skow]

1) you have to live in peroperty to use VA loan or even a FHA or even a low down payment conventional loan ...underwriters / lenders will need to have a make sense file / reason to approve this as they are aware of the high amount ofoccupnacy fraud thats happened recently 2) managing your first property as a 4 plex from 3 hours away sounds like a recipe fro a headache/ problem