4 plex at market value

[David M.]

Hello BP community,

Do you think this is worth pursuing? I understand the main goal is a "great deal," but for my first time out, I'm ok with an "ok" deal at the moment.

4 unit (2br/1ba each), market rents are 750-800, currently all are rented for about 640-650. Seller would be asking 280K. Using 8% vacancy, 8% repairs, 8% PM, there is no cash flow. Without PM, it would be ~200/month. (I do plan on self managing, but want to build PM in as well). Goal with this is long term buy and hold.

If I run the numbers with slightly under market rents, and institute RUBS, it ends up cash flowing about 525/month (including PM) which is about 9% CoC. (30 years @ 4.9 %, 25% down)

Those numbers are pretty good for this area from what I've been seeing. This owner though hasn't increased her rents, but is selling based on what market rents could be. Property is in above average condition with a lot of recent improvements including new roof, windows, an 3 of the 4 units fully rehabbed within the past 2 years. 2 of the 4 water heaters replaced last year.

Thoughts?

[James C.]

David,

I would say the building needs to cash flow correctly based on it's current position. 

Moving it to a new position costs money, one way or another. RUBS ain't free, nor is raising the rents. Pulling out your allowance for PM to make numbers work isn't a good idea... you never know when you might need to put PM in, and now you are at a breakeven or loss. You haven't mentioned your expenses, only the 8% reserves, which is forward looking, not current. I'll just say, if you haven't pulled expenses, plus your 8% reserves, out of the income, then it would be advisable to do so. If you haven't added in the expenses, and you do so now, then the deal probably won't work at the current offering price.

I would see at what price the building cash flows at a level that makes sense to you and your business plan metric (i.e $100 - 200 per door. 10% ROI etc.) and float that price by the owner. (after due diligence, of course)

On the Deal scale ("No WAY" to "Heck Yeah, NOW!"), this is a "Meh" to "Um, Nah, Not Today" deal from my perspective, but I'd spend a bit more time doing some due diligence.

Jim