Looking at a Fourplex

[Brad Gibson]

Im currently looking at a Fourplex in West Texas.

Unit 1 -- 3 BR 2 BA

Unit 2 -- 2 BR 2 BA

Unit 3 -- 3 BR 2 BA

Unit 4 -- 2 BR 2 BA

All four units are rented at $625, $525, $625, $525.  Total monthly income is $2300.  It has a new roof.

List price is $114,000.  I would say the property is a "C" or "D".  Tenants pay all utilities.  The area/neighborhood are not in the growth path of the city, so appreciation will likely lag.  This is a pure cash flow play.

Here's what I'm looking at 90% occupancy rate.  

$2,760 per year in management

$200 in accounting and legal

$3600 per year in repairs/capex

$1200 in insurance

$2,667 in taxes

$5,508 in debt service after 20% down

From those numbers, it looks like it might cash flow over $10k per year which would be a really nice return on equity.

Any thoughts for a newbie? I don't know how insurance treats duplexes and/or if the financing will be different than a SFR. I already have a $1 million umbrella policy.

Thanks in advance.

[Brad Gibson]

@Logan Turner I've looked primarily at Lubbock because it is less dependent on the vagaries of the oil industry.  Lubbock has TTU as well as a large health care complex that lends to pretty stable and steady growth.  

As you are probably well aware, Midland and Odessa have been white hot, then cooled.  Rents have come down some, but the prices for homes have not followed.  They're still pricey (relative to history) and seem to have plateaued instead of continuing their rise.

Long story short, initial cost to buy in has been a barrier.  

I'm a new investor without "Piles 'O Cash" lying around for the 20% down payment. I looked for SFR in Midland last Spring and found a 2 BR 1 BA shack in SW Midland for $110,000 firm. To bring it up to rentable condition would have required $50,000 in rehab costs. So approximately $70k out of pocket to get started, unless I could have refinanced the repairs. The numbers on rent for a 2 BR 1 BA made the return on 70k not optimal.

I looked at some duplexes that were being shed by a local investor's group.  The problem is I couldn't get traditional financing because a specific percentage of that neighborhood were rentals and not owner occupied.  Couple that with falling rents and guys in the real estate business shedding their properties made me nervous about the market in Midland/Odessa.

I'm new at this & obviously not an insider with respect to any housing market, but am I interpreting things about Midland/Odessa market incorrectly?

I do know one thing from my past real estate dealings.  If you are the retail buyer, then you are the mark.  Everyone makes their money off of you because you supply the cash either up front or in the form of debt service payments.  Seller, realtor, mortgage broker, inspectors, surveyors, appraisers, contractors, etc.  Caveat Emptor.