4 family great location in rough shape..is the juice worth the squeeze?

[Kevin Olson]

BP, 

I have an 4 family under agreement in a affluent town north of Boston, very low vacancy rates and majority single family higher priced homes in the area. Property is located in a great  location with ample parking (commodity that proj. will give me additional $300-500/mo income).

Have had an inspection,  the house is old and in need of renovations for sure, to get it to rental quality my partner and I are estimating $55k in repairs, which we have into our 10 yr. construction loan mortgage (interest only for 1 yr.)

With that being said, if we use the total construction costs, or debt service on mortgage + RE taxes and water/sewer = $2,100/mo or 24,800 annually

Conservatively projected gross income= $4,050/mo or $48,600 annually

Tenant pays on electric which is heat and lights/plugs.

I understand with the 50% rule on expenses this would not cash flow ideally how I would like, however approx. $300-400/month of the income is parking which shouldn't need too much upkeep, and is 50% accurate for 4,000/mo property in income?

 Any thoughts if this property is worth it, long term or more of a shorter term fix, rent out and sell as a fully performing asset? 

Purchase price: $351,000

Gross income: $48,600

Mortgage/Taxes/water&sewer(paying on mort. at $405,000): $24,800

Fully performing (4 tenants) After Repair Value: $475,000-$500,000

I have taken into account costs associated such as cap ex, prop, management, vacancy,etc..  any advice would be great thanks!

[Bill Jacobsen]

The 50% rule is just a ball park figure.  I would get a better handle on expenses before considering for a buy.  These expenses should include:

Vacancies-I use 5% of rent unless I have other information.

Management-  I usually am paying 10% of rent + 1 month's rent to fill vacancy

Maintenance-I would use $1,000 per unit

Capital reserve-  I would use $2,000 for property.

Taxes-I use last year's taxes + 10%

Insurance-based on quote

I find that expenses are usually higher than 50% on rents under $500.  I would assume that they could be lower than on a property as you are describing.

Good Luck.

Bill