Requesting assistance on a multifamily

[Christopher Wedde]

Hello BP,

I am currently looking at a property in Rollinsford, NH a class C-B area. It is a quad unit 8 bedrooms and 6 bathrooms, 4,238 Sqft. Asking price is 330k. I will be buying via a VA loan, seller offered to repair everything the VA inspection brings up. The house is in decent condition, was built in 1880, a lot of cosmetic issues on the inside and out. The only two concerns I have is the brick wall foundation is bowed out on one side and the chimney is leaning a bit. The owner did a patch job to steady the chimney but I feel it will need to come down, sooner rather than later. 3 of the 4 units are rented out currently for 950, 1000 and 1000 a month. I would bring the rents up to 1050 a month for each about. Which would make the NOI to be about 26k. Overall I definitely think 330k is to high. So my question would be what would you do? Would you make an offer? If so how much?

Thanks in advance for any and all answers.

[Matt Lefebvre]

I wouldn't recommend allowing the owner to be the person who repairs the items that come up when a VA appraiser comes in. Considering the work they did on the chimney was already a "patch job", it wouldn't be wise to have them do it again. Both of the issues you're referring to are structural-related problems and NOT something you want an amateur to fix.

You also mentioned the house has a lot of cosmetic issues too... if you're purchasing with a VA loan, these "cosmetic issues" depending on what they entail, might also be flagged by an appraiser and require further repairs.

Quick number crunching shows me that (if a NOI accounts for *all* expenses) you are looking at a 7.8% cap rate with you owner occupying the property. That actually seems like a pretty good trade-off. Once you add your debt service (just ballparking here), and assuming a roughly $2000/mo payment based on 0% down on a $330K note, you do drop to barely cash-flow positive.

Its up to you if owner-occupying a property where you aren't making much money is something you're okay with (in it for a much longer term play) or if you would prefer to find another one that is cash-flowing.