4 Plex Deal Analysis - Kentucky

[James Wilcox]

I have a 4 plex deal analysis for the BP community to take a look at in Kentucky. It is located in a C neighborhood. I have been waiting to get a four plex for awhile and finally have one lined up that I want to highly consider putting an offer in on. This 4 plex was a foreclosure bought by the owner in 2012 for 73k. He has put a lot of work into it and has covered some of the major cap expenses (roof, hot water heaters, furnaces, 1 AC, flooring, ect...). However, it has some major issues in the past. It is completely occupied atm. The only major issue I see is that he has had many major expenses last year due to a plumbing issue from the cast iron pipes that caused one unit to be down for a very long time and did cost a lot of money to fix. Likewise, the plumbing and issue of vacancy of around 38% for last year really hurts the numbers, but I hope the major issues are done with. I am not sure about how to best judge plumbing. My agent and I did different analysis for different amounts and what the "probable" expenses should be.

Think I should try to get it or is this just got more problems waiting for me? Maybe someone with more experience in 4-plexs can chime in. I can provide more information if needed. Never asked the BP community for help so not sure what information you might want.

The BP analysis (130K with my expenses put in) is my take and the excel is my agents take (he does a reverse off cap rate and the reported expenses by the owner).

[Clay Smith]

First, lets try a method that makes logical since, instead of some ratio calculation.  Work through each of these scenarios.

1. CAPX

As for planning on saving for capx, there is an article on here with capital expenses listed out by age. You cant make money.  Use these figures, adjust for age, and plan your savings for capx.  I believe the cost figures on this article are inflated, so make sure you price the expenses accordingly for your property and area.

1. Known Expenses

• Get taxes from Zillow or county site. 
• Rent roll from owner. 
• Call utility companies for costs on water, trash, sewer, common electric, gas, lawn care, etc.
• mortgage (p&i)
• Insurance (I use NREIG)
• Management (7-10% depending on your area)

1. Vacancy

I lock tenants into 2 year leases.  I generally fill them before the next person moves out.  For now, plan for one month of vacancy at the end of each lease period.  This is one stat that proper management can offset.

1. Unknown Expenses

I think you have to plan for unknown expenses based on condition. In the last two months I have had issues with bats,  squirrels, spray paint, mail theft (leading to a turn over), etc.  All things I never planned for. You never know what is next.

I plan to cash flow $100-200 (before repairs) per door at minimum on any property I buy.  If it is a house that is in a Historic District, with wooden siding, and a converted property then I go for $200.  If it is a nice brick multifamily built to last and every capx item has an inspection sticker on the materials (water heater, electric panel, etc.) then I go for $100.  It all depends on what shape it is in.

1. GET AN INSPECTION

Do NOT skip the inspection.  It is a bartering chip and will help identify risks you can mitigate using seller concessions.  Use this to shore up your investment.

1. IN CONCLUSION

Once you figure out all of this, you will have a better understanding.  I stopped doing all this tedious work and I generally look for $200-$250 per unit based on condition of property.  This seems to work well for me.  In the end, it is a game of averages.  People with 10 properties generally have less risk of "going in the red" on any given month than the person with 1 property.  If all you really ever buy is a couple properties then all you did was create a miserable hobby.  Never stop buying, the processes make it easier.