What would you pay for this 4 Plex?

[Erik Stewart]

Based on the income approach:

For a 4 plex in a B neighborhood accross the street from a school, 2 churches, and a few large employers in a town of 40k. This building was built in 1978, 2 units are 3 bedroom 1 bath, 2 units are efficiency. 2 stall detached garage and parking slab next to garage for 2 cars. Currently being rented for $2,050 monthly, but there is room to raise rents to $2500 monthly. Electricity is paid by tenant. 

Taxes 2800

Insurance 1500

Owner paid utilities: 2000 annually

Onsite Coin op Laundry generates approx $100/month.

Newer shingles on roof, vinyl siding 10 years old, all water heaters are less than 10 years old.

One of the 3 bedroom apts needs new floor coverings and updates to bathroom (current tenant has been there for 20 years approx) will need to budget for repairs for when they move out eventually.

Still budget for property mgmt although I will self manage for now.

**Also factor in that I am trying to use an FHA loan to purchase.

IF I missed anything, please let me know and I will provide updates as needed!

Thanks in advance!

Erik

[Kyle N.]

Everyone is different, but here is what I do:

My rule of thumb is that I need to make no less than 10% return on whatever cash I put into the deal.  That is accounting for all down payments and rehab that is needed right away.  I use 10% capital expenditure rates to help budget for future costs.  If you are going for a 30 fixed (which I would) you will likely have to put 30% down, so keep that in mind.  And I just plugged 5% for 30 years, to be a bit conservative about the payment. I used a vacancy rate of 8% (1 month per year per unit).  With all that said, I wouldn't pay any more than $175,000 for the deal.  To me, anything below that is extra cash in your pocket.  I have no clue what your market is like, but you asked what I would pay, so I gave it to you. 

What is the asking price?  What do you know about the sellers?  Are they distressed and need out or are they trying to get a high market price and don't need to sell?  Just because I said I would pay $175k, sure doesn't mean that is my offer!

Good luck, I hope it works out for you!