Utah Fourplex with Tenants. Good deal?

Question

Hi, BP Folks!

I recently came across a Fourplex in the West Valley City, Utah area. All four units in the complex contain two bedrooms and one bathroom. The complex was built in 1979. Owner's agent states that all units are rented out as of this posting, but rental amounts were not provided (although I will be sure to get that info soon).

The owner is asking 319k for the sale. Comparable rents in the area for a 2bed/1bath are between 800-850. The complex seems to be in a B-/C+ area, but could easily net $3000/month with current rental rates. I would be purchasing this property using a conventional loan and would not seek to live in it unless necessary.

I ran a few scenarios on the BP rental calculator, and even if I offered full asking price, my ROI was above 40%, but I understand that is likely over-inflated. I made some assumptions, including low repair cost of $5000 (owner states that units were recently painted and new flooring was installed), no closing costs (as I am paying full price in this scenario), 16k down payment, tenants paying for their own electricity, gas, me paying for water, sewer & garbage. All amortized over 30 years at 4.3% interest rate. Lastly, since I don't know vacancy rates for this area, I assumed a vacancy of 3%. Numbers still looked good with me clearing north of $800/month after all regular monthly expenses had been paid.

So, with all of that said, I would love some feedback on this property from some BP investors. What advice would you offer?

Thanks!

Becca Summers · Answer

@Kenan Karalic in the current market no seller has paid the full buyer closing costs in that market. The most a seller has paid is $7,000 most haven't paid anything. So I would factor at least 2% for closing costs. The lowest down payment for a non owner occupied loan is 10% with Mountain America and the investor interest rate is normally .5-1% more than the owner occupied loans. The range in while those 4-plexs have sold is $290-$310 in varying conditions.

The area that @Anthony Hurlburt is talking about is a little sketchy the other properties the others that have sold their rents are between $700-$750.

I would calculate a higher vacancy just to make sure you have the time to screen and get a good tenant and not feel rushed into picking a low quality tenant and have more problems later.

William Hochstedler · Answer

I think your numbers are a bit rosy.

If you are paying for water, sewer & garbage, property management, taxes and insurance, $3000/mo sounds more like a best case scenario than "easily".

Maintenance is a huge variable in these buildings and never $0.  Even the best maintained properties have systems (like plumbing) that are probably original and are at the end of their useful lifecycle.  Moreover, because of the age, fixing these things usually means replacing because parts are no longer available (range elements, side mount faucets, etc).

Also, where are you getting a non-occupant loan with 5% down?  I think the numbers you are using are only available to owner occupants.

That being said, with interest rates where they are, decent positive cash flow, and if this is in an improving area, it's hard to go wrong with these.  I don't know of a single person that bought a cash-flowing 4-plex who regrets it 10 years out.  If you are willing to live there for a year and get in with little money down, can self-manage and are handy, you might have a winner.

Good luck!

Mike Palmer · Answer

@Sam Shueh: Your market is completely different. How would the vacancy rate in your market have anything to do with vacancy rate in our market? I have not had a vacancy in about 5 years...

Sam Shueh · Answer

I will demand a third party with independent appraisals.  As for the numbers all sellers are providing rental info with lease attached for review.  I will demand a tax filing schedule to confirm it.

3% vacancy in Utah sounds low. I am in Silicon Valley, CA. Since 2015 most rentals are a bitch to rent out as there are few professionals moving into the Valley for rents. Those who do show up want to haggle for discount.

Anthony Hurlburt · Answer

@Kenan Karalic If it's the same property then it is in an area of maybe 15-20 other fourplexes.  They all had some amount of tagging or covered up tagging on them.  Garbage in the streets etc.  Drive by and get your own impression.  If it's the same property I would recommend against it for your first multi-family.  It looked like a huge headache to me.

Kenan Karalic · Answer

@William Hochstedler - Thank you for the feedback. It was exactly what I needed to read. This would be my first multi-unit property and I'm looking for feedback before I invest in a property that will be a money pit. I plan to dig into this property a lot more to get numbers that are much more true to cost.

@Anthony Hurlburt - We may be looking a the same property. I haven't driven by it yet. What did you find that turned you off?

@Devin Deswert - Thanks for the feedback. I am still unsure of the general vacancy rate within the SLC, WVC, and surrounding areas. Is it actually near 10%, or is that a good conservative number to use when analyzing the property through the rental property calculator? What has been your experience?

Anthony Hurlburt · Answer

@Kenan Karalic Have you driven by the property?  There is a Fourplex on the MLS for 319K in west valley that I drove by and it was pretty scary.  I would have been afraid to get out of my car.

Utah Fourplex with Tenants. Good deal?

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