What would you pay for this Minneapolis 4-plex?

[James Miernicki]

I am looking at buying an off market 4-Plex in a B neighborhood in South Minneapolis and in B condition. I am torn on valuation and am looking for input. I have idle cash and I have a HELOC on my home with nothing out on it. The 4plex in question was marketed on Craigslist. The owner is an old school guy who strikes me as honest. He says he wants to free up cash for another investment and says he did not want to post on the MLS because he does not want to pay realtor fees.

This area of Minneapolis is fairly popular for owner occupant multi-families. We did it for 2 years in a duplex one block over from this 4plex. The 3br in this 4plex would need $10-20k of work to become really attractive to an owner occupant in my opinion. Good quality small multi-families sell for about $100 per square foot in this area.

More info on the 4plex: 4000 finished square feet. 1 furnace; high efficiency forced air (natural gas). 1 extra large hot water heater. Tenants pay their own electric. Common electric paid by landlord. Water, sewer, and trash paid by landlord. Flooring is a mix of tile, hardwood, and carpet. 2 car garage with no electric. The building is serviceable as is but could use $10k of fixes to bring up to a better standard. I would keep the property as a long term hold. 

Unit 1: 3br/1.25ba, $1250 rent

Unit 2: 1br/Studio (Bedroom, Bathroom, Kitchen); $600 rent

Unit 3: 1br/Studio (Bedroom, Bathroom, Kitchen); $540 rent

Unit 4; 1br; vacant and advertised for $695

Gross Annual Rent before Vacancy: $38,000

Annual Expenses + Vacancy: -$19,000

Net Operating Income: $19,000

My estimate of expenses + CAPEX reserves and the 50% Rule both agree at about $19k per year.

Fire your opinions at me on what you would pay for this property!

If I forgot to provide any info please ask. 

[Brent Coombs]

Start with sold COMPS, then work downwards from there. The raw "1% Rule" suggests that you shouldn't pay anymore than $360k (allows for $20k rehab), but that could be too high, or too low for the area. If it's normally too hard to get 1% gross rent per month in the area, er, so what?

But if the "2% Rule" is readily gettable in the area - then of course your Offer price would work downwards from $170k! See why it's too hard (for us) to be more specific? All the best...