4-plex deal analysis

[Emily S.]

Hi all, as usual, the greater brain power is so much appreciated from this group. 

Found a multiplex in Southeast PA that would start me off on my goal of owning 10 4plexes with a cash flow of $150-200/door and looking for your opinions. Namely, wondering what I may be missing because it's been on the market for about 9 months as a short sale. Nice, quiet area. May potentially need new roof in the next 5-10 years, per contractor friend. 

4 unit - Three are 2/1 and the fourth is a 1/1

Asking price: $250,000

ARV: $300,000 per RE agent, but comps are impossible in this small town

Current Rent: $2280 ($760 for each of three occupied units. Fourth unit is vacant and stripped, awaiting remodeling that current owner never got around to doing.)

Estimated repairs on vacant unit, per contractor friend that saw it: $15,000

Estimated rent for updated fourth 1BR/1Ba unit: $700

Utilities (water, trash; electric is metered separately and tenants pay): ~$200

Ran it through the BP calculators a couple times and found that at asking price, 20% down, and only the three units rented, it about breaks even (including 10% vacancy, 6% repairs, 8% capex, and 10% PM). 

If I got it for $200,000 (which is about 70% of ARV minus repairs), repaired the vacant unit and rented it, the place cash flows ~$150/door. I know that's not huge, but it's a big deal for this area. I haven't been able to find anything that cash flows at all. Here's the link with all the details. 

So, if $200k works for my numbers and that's what it's worth to me, that's a reasonable offer?

Do you guys see any loopholes that I'm missing that is scaring away other investors?

Of course, I don't have the cash to put down on this myself, and that's my biggest hesitation. If I were the only one that would get burned from trying this, I'd be in it already. Just want to make sure it's at least a "good" deal before I drag someone else's money into it.

You all rock, 

Emily

[Brad Saari]

For grins lets say you get it for $225,000, and its ARV is $300,000

Lets call your cash outlay $65,000 (20% down, $20k for improvements) . Keep in mind some banks require greater than 20% for multi unit income property

Total Rents $2,980

Total expenses $1192 (at 40%, some people use 50% as a guide). Might I suggest you skip the PM?

Monthly P&I (180,000 @4.5%) $912

Where would you get the cash to put down? That's a big missing detail....I'll ignore that for now and assume you have the $65,000

Cash Flow = 2980 - (1192 + 912) = 876 or $219 a unit

Year 1 Cash on Cash = (876*12)/65,000 = 16%

Total ROI Year 1 (cash flow + equity + appreciation at 2%) = (10,512 + 2903 + 6,000)/ 65,000 = 29%

Numbers look fine if you have the $65,000 or someone is giving you a no interest loan...I did this very quickly by hand :)