Four-Plex Advice Please

[David Neman]

Hello, what a great forum this is. I have a question about a property that's available in my area and whether it sounds like a good deal or not.

It's a 5,283 square foot four-plex in southeast Texas. The lot size is 35,000 square feet, and both of the one story duplexes were built in 2004 and have attached two-car garages. They look to be in pretty good shape. The units are directly next to an elementary school, and the property is one of the only multi-family units in the area. Other properties are single family houses and trailers in a fairly rural area. The area is quiet and low crime, and I think will become a little more popular over the next few years due to urban sprawl and some colleges, restaurants, etc being built a few miles down the freeway. Everything is kept up and many of the surrounding houses are ranch style with some acreage and quite expensive - others a little less.

Here are the numbers according to the realtor:

Asking price is $374,000

The unit is fully occupied and generates $3,275 in monthly gross rental income

2015 Taxes were $7,953

2015 Insurance was $1,296

All utilities paid by tenants

I want to live in one of the units, so my gross income from the remaining units would be about $2,456.

I'm budgeting 8% for vacancy of the remaining 3 units

I feel like the asking price of this property is high compared to the amount of rent it brings in, but that's why I am here asking for advice. I've read that operating expenses should be budgeted at 40% of gross monthly rental income, however this seems high to me as well.

Does this seem like an ok deal on the surface or should I be looking for something with a better ratio of rental income to purchase price? I know I'll have to pay for things like trash and landscaping, and I would like to probably increase the insurance coverage a little which will further add to the expenses. What else am I missing?

Thanks a bunch for any replies!

[Fred Heller]

@David Neman   I'm 99% sure that I know exactly what property you're speaking of. It's in rural Ft Bend County. The numbers and the school across the street gave it away. I've pitched it to a couple of investors, but nothing's worked out so far. Everyone wants to buy in the loop.

If I'm incorrect, which I don't think I am, ignore everything from here.

I think this would be a great investment for the following reasons:

1) If you're planning to live in one of the units the rent from the other units will cover, or almost cover, your mortgage payment. You'll be living basically for free.

2) The rents on these units are way below market in that area. These units are renting in the mid-to-upper $800s. The 3BR units should be renting for $1200 a month.

3) The lot size is 35,000 SF. You could add another 4 identical duplexes in the future if you want.

4) There's no renovation required. All units are up to date and in good shape.

The property was first put on the market for $419,000 in July 2015. The price has been reduced since then. There has been one offer, which fell apart over financing.

I have the inspection reports. I think this would be a good investment property for you. If you would like assistance in acquiring this property please PM me.