Dallas 4-plex - Good deal?

Question

Hello BP community!

My fiancé and I just got our first offer accepted for a four-plex in Dallas and are looking for some advice on our analysis before our option period ends.

The property is comprised of four 2b/1ba units in the South Dallas-Fair Park neighborhood and is right across the street from a large industrial plant. The building has a parking lot with no cover and a brand new 30-year roof. It's currently fully leased at $600/unit.

Asking Price: $200,000

Gross Rents (4 units): $2400 per month

Expenses: Taxes: $350/moInsurance: ~$200 (haven't gotten a quote yet)Vacancy (5%): $120 Repairs (7%): $168Capex (6%): $144PM (10%): $240

Total: - $1,222

Mortgage: - $787 (conventional with 20% down and fixed 4.25%)

NOI: $2400 - 1222 = $1178

Cash Flow: $1178 - 787 = $391 per month (10% CoC ROI)

We feel like this is a pretty good deal based on our numbers, but want to see if we are missing anything? We would also like to hear from anyone that has experience with this type of investment in this area of Dallas.

Thanks all!

Andrew Herrig · Answer

@Calvin Clark I would not touch this at $200k. If it's the property I think it is, it has been on and off the market for over a year now. Fair Park is a tough area - I would call it a D neighborhood. You can certainly make money here at the right price, but tenant quality is poor. I would factor in a lot of turnover, evictions, and maintenance.

In my experience, you should not buy anything in this area at less than the 2% rule, assuming you are comfortable with the tenant class. That would mean I would pay no more than $120k for this property.

As a wholesaler, I just passed on a similar deal (4-plex in Fair Park, needed a little work though) where the seller was asking $80k. It may cash flow, but it will be a headache to manage (good luck finding a good property manager in this area), and I would count on the property value continuing to go down over time.

TLDR: If this is your first investment, and an out-of-state one at that, stay away. Very high risk investment, and if it goes badly it will put you out of the game. Start with something safer.

James Syed · Answer

@Calvin Clark

Welcome to BP.

Yes, you are missing a few things. Who pays for:

1. Trash

2. Lawn Care

3. How old is the property? What kind of exterior is it? It will make difference in your maintenance and repairs figures.

Based upon your figures, it's an OK purchase. As per my own calculation, I wouldn't go over $180,000.

Hope it helps.

Nick B. · Answer

Another thing that you are missing is location. South Dallas is a low quality area. Look up a crime map on Trula or other source.

Calvin Clark · Answer

Thank you everyone for your responses! The inspection came back so horrible that the inspector only charged us half of the original cost. We ran as quickly as we could from the property. Some of what was found:

- glass in front of both crawl spaces (seemingly intentional)

- all of the meters were spray painted over

- some rooms were inaccessible due to the amount of trash/furniture in the way

- registered sex offender on the property

Thankfully, we walked away. This would have been a terrible first investment. Good news is that we closed on a duplex in Azle, TX in November and are on week two of positive cash flow!!

Jose Matuk · Answer

@Calvin Clark I would like to know how this went, keep us posted!

Chad Benedict · Answer

@Calvin Clark That doesn't surprise me you've had trouble finding a property management company. You might have to offer more than their usual fee to get anyone interested. PM me and I can send you the name of another company, don't know if they'll take it or not.

I wouldn't trust the rent rolls unless you see bank statements as well showing those deposits every month and on what day of the month the deposits were made. That's not just for this property, that's for any property.

Based on the expenses provided I'm sure there's a good amount of deferred maintenance. Hopefully the inspection will provide more insight.

Chad

James Syed · Answer

Welcome to BP.

@Calvin Clark

Building looks pretty solid from the view of the provided picture. I liked it that it seems to be all brick which means low maintenance. Age 32 is good as well.

Since trash, water & sewer are paid by tenants as well, it seems to be a good enough deal. Here's my final take.

$180,000 Great Price

$200,000 Good Price

Last thing, have you got any sold comps for the immediate area for the past 6 months?

Hope it helps.

Calvin Clark · Answer

@Chad Benedict no, we haven't found an property management companies that have wanted to take the property on yet. It seems some of the companies we call are a little apprehensive about the property, which doesn't give me much confidence. According to the rent roll over the past 3 years, the vacancy rate is about 8%, and the average expenses are about $3800/yr. Here's the spreadsheet:

Inspector is going in tomorrow to get an idea of what the inside looks like. We'll see what comes back before going forward. Trulia crime is not the worst i've seen:

Calvin Clark · Answer

@James Syed The tenants split the water and trash equally. Lawn care should be minimal as the entire front area is a parking lot basically. The property is 32 years old, but the roof is brand new. I've attached an image here to see what it looks like.

Dallas 4-plex - Good deal?

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