Four Plex

[Nate Atwood]

Okay well here is my second four plex idea I’m trying/thinking to buy. There are four little houses on two tax lots. Two 2/1 and two 1/1. I get cold feet, still scared and unsure of myself so I’m turning to you guys for ideas and comments. All units being rented now but rents are low - 350, 375, 475, 475. We feel like we can get rents up to 450, 450, 600ish, and 600ish

Originally being sold for 149,900. The guy has had "cash offers" but didn’t take it.

$300 for water, $50 trash, $100 maint. I do my own maint unless something major is wrong

Give or take $2000 taxes and another $2000 insurance

Owner can carry. We are thinking 117,000 with 17% down = $19890

5% interest with a 10 year loan.

What am I missing? Where am I short? What do you think? Thanks

[Kathy Henley]

@Nate Atwood Don’t overlook the 4 roofs, water heaters and furnaces. I set aside 10% of rents for capex. I set aside 10% of rents for property management and marketing. Even if you are going to do it yourself, you may not always want to.

One wants to buy the building on actual figures, the expenses and the income. You are doing the right thing to ask. The insurance figure sounds high, talk to a broker who will find the right company for your situ. Find out what it is worth TODAY by what it is earning TODAY. The beauty of seller financing is that the terms are set by the two parties negotiating, there are no rules. The monthly payment is determined on the length of the loan, the balloon deadline sets a mark on the calendar when the remaining loan balance will be paid in full, regardless of the 15 or 30 year term used to find the monthly payment number.

In your case, this underperforming property needs time to raise the rents and lower the expenses (like that insurance) and increase the cash flow. Before you buy, determine what improvements need to be done to get to market rents and how much time will it take to make it happen? Include a vacancy rate, the time to get a unit rent ready for the next tenant, plus time for marketing and finding the right tenant. Will it be in 1 or 2 years’ time? This will help you set the minimum balloon date. When does the seller need the bulk of the money? It’s negotiable.

It should be ready to re-fi because of the improvements, paying the original note with the new loan proceeds.