Ohio four plex multifamily - Initial Offer and Analysis

[Tommy DeSalvo]

Hello BP! I've made multiple offers this year, and I've lost on all of them, either to higher bids or all cash bids. Not much I can do there, but I just put in a new offer on a property and I would like to see how my numbers hold up to peer review. The more eyes on the deal, the better. Without further ado, here are the numbers:

This is a banked owned property. Originally listed at 104k. Price drop last week to 99,900.

At 99900 it has a cap rate of 12%. 

I'll be offering 65k, I'll have a FHA loan, and I'll need a 203k for about 15k for rehab.

I'll need 2800 down. 

Monthly Mortgage payment of approx 550.

4 x 1 BR units. Will rent for 525.

Gross income: 25,200

After 50% rule and mortgage that leaves about 6k yearly profit, or $125 profit per unit per month. 

The AMV will be around 160k. 

Thoughts? Are my numbers way off? How much does everyone think I can come up without losing too much cashflow? Advice?

Thanks for your time!

[Kyle H.]

I don't know enough about the area to know how to defeat it, but trying to get the exact reason why this house foreclosed is anyone's best option.  However, my advice would be precisely what you said, @DL Martin.  Make it one of the nicer complexes at the same rental price as the other units, or slightly less.  Build a few longer-term relationships, and slowly creep the rent up to market value.  Here's how I have been attacking my 4plex. 

My tenants know they are well under market value for rent...it's no secret.  The prior owner kept them lower so he didn't lose any tenants.  I'm currently sitting on a 30-year, 20-year, 8-year, and 2-year tenant selection...they're sticking around because they have a nice, quiet building for less than everyone else.  Whenever a lease comes due, I simply say the following: "we both know what market rents are for the area, so what do you think is a fair increase?  Everyone else's rents in the area will go up too, but we know we need to get you closer to them than where you are at now."  They normally start with a decent raise, to be honest.  If i like it, I tell them I agree.  If I don't, I tell them why I think it should be slightly higher...water increase, gas increase, huge gap between market rents, etc.  By doing this, my tenants feel like they had a say in what they're paying every month, and it goes a long way to help them respect the property/stay in it longer.  They are essentially bargaining their own rent.  Criticize me if you must, but it makes them feel like their opinion is valued and that I am considering their financial situation as well...which I truly am.  I want them to be able to afford it comfortably and feel like they have a steal...as long as I'm not getting robbed :)