What would your asking price be for this property?

[Brenda Reems]

I am analyzing my first deal. These are the numbers:

4 plex built in 2012. All units are 2bd 1ba and good size. Fairly turnkey (needs some gravel in the parking lot, new flooring in the entry way/hallway, holes in vinyl siding from lawn mower). It is a slab on grade so full windows in lower 2 units. I do not have an inspection report but those were the things I noticed. I was not able to get into the lower 2 units unfortunately.

According to the previous owners numbers: Expenses for 2022 was $13,610, 2023 was $13,869 and 2024 was $9,779

Rooms are renting for $825/mo with $50/mo pet allowance. 1 current tenant has a pet. 1 units lease was just signed in March and the rest are on a month to month.

I would like to convert some of these units to a MTR (huge need in this area). MTRs are running $1,400-2,000/mo. I think this could easily get $1,600 if not more.

Place was bought at the end of 2021 for $245,000. They bought above listing price.

Concerns I have are making this property cash flow as a LTR. Second is the difference in expenses from 2024 to the 2023 and 2022. Was there deferred maintenance? Were they fudging the books? Those numbers do have management fees included. I would manage on my own for now but may not want to do that for forever.

My numbers and the realtors numbers are not adding up. I am new so I wanted someone else's opinion on what an investor would offer with these numbers. It is an off market deal. 

[Benjamin Aaker]

The problem that you will run into is that, as an investor, you'll want to use the income method to calculate the value, but 4 plexes and down often sell for whatever the market is doing and right now the market continues to be up. That means your seller will be thinking it is worth a lot more than you do (though this phenomenon is less pronounced as you go higher from SFR to duplex to triplex to quadplex. For the market, you should ask an agent in your area who deals with these types of properties.

For an investment, very roughly, I'd look at the monthly rent for each unit x 4 units x 12 months for the annual income. Ignore pets unless you know there will be pet rent all the time. That's 825 x 4 x 12 = 39,600. Estimate 50% of this to go to expenses (everything but the mortgage and capital expenditure). You might be able to do better than this, but starting out, go conservative. That leaves 19,800 in net operating income. Subtract 5% of the gross income for cap ex (39,600*0.05 = 1,980). Removing that from your NOI leaves 17,820. That's the maximum annual mortgage you can pay. For this property, it turns out to be about $222k if you don't put anything down and have a 30 year amortization at 7% rate. 

You are finding out what many do, as an investor you have to pay less than retail buyers. You'll either need to go bigger or find value-add properties that the typical buyer wouldn't buy. Don't spend any money evaluating this place until you can agree on a price.