4-Plex Deal Advice

[Mav Larson]

Hi Everyone, 

Thanks in advance for your advice/comments. 

4-Plex for sale near a major university. It's located just on the fringe of expensive student housing. This 4-Plex, along with several of the other 4-Plexes along this street, have been neglected for awhile. The university keeps expanding, student housing keeps spreading, and this area is in the path. So although it's not in that great of a neighborhood now, it's right around the corner from a great neighborhood and will eventually become noticed by other investors. 

This particular owner is retired, its his last property, and he's willing to do owner financing with only $20,000 down.

Here are the numbers:

Price: $240,000

Current Rent: $2,000/month (4 x $500)

Insurance + Taxes: $426/month

There's about $15,000 of deferred maintenance, and although very little has been updated since 1985, the building is in pretty good shape. With even a little rehab, rents could definitely be $600 - $700/month. The student apartment complex behind the property rents for $1,000/month.

The seller is flexible on the terms of the sale as long as I "don't try to low-ball him." 

Here's my question: I think I'm overpaying at $240,000. But with only $20,000 down, and if I can get the mortgage payment lower than $1,000/month, is it worth paying the $240,000? This isn't definitely not a steal. But it's owner financing, with only $20,000 down, and in a neighborhood that will appreciate as a bonus. 

Your thoughts?

What about someone who has experience with 4-Plexes as I have only done strictly class-B commercial up to this point. 

[William Hochstedler]

@Mav Larson

We find that these properties, even with deferred maintenance, are what everyone wants because the typical buyer for these understands that students are a captive rental market and the area is fairly nice.  What's more they tend to be alumni who may have left the area and made their money elsewhere.  Near campus is the only thing they know.  Or, we see many out-of-area investors purchase multi's when their kids matriculate.

Either way, their requirements tend to be very different than mine.  They want something much more passive than I need, are looking to park cash, are seeking tax benefits, and can tolerate much lower cash flows.  Those of us in the business full time tend to have much different criteria (our cash is working actively all the time for higher returns).

@Aaron Allie

Renting by the room/bed can be very profitable, but also be a management nightmare.  Shared housing usually attracts undergrads who are living away from home for the first time.  Expect high turnover, partying, high summer vacancies, etc.  Just know what you're getting into and get a property manager's opinion.

@Logan Hassinger

I would add lawn care to any list of expenses.  In Utah, we also have snow removal and these can add up.

Also, $40/mo for pm software?  Not a plug because I haven't used it, but just saw a demo for Cozy.  It looked pretty slick (and free).