Multifamily in NE Minneapolis Minnesota

[Sherry O.]

I am analyzing a potential deal in a B neighborhood. It is a 30-year old four-plex with the asking price of $415,000, NOI of $29,000, putting the property at 6.99% cap rate, cash on cash return is around 10%. There is a very similar four-plex in the same area that was just sold at $380,000 earlier this year. And it had some updates done before selling.

Because I am new to investing and kind of risk-averse, I am more leaning towards buying in a safer neighborhood and learn how to manage/maintain a rental before buying fixer-uppers that can create higher returns.

My feeling is the asking price is too high, if I can negotiate and get it down to $370,000, it would be a workable. Is it an OK deal? What should I look out for or consider before making a decision?

[Michael Schmalzer]

@Sherry O.- based on the little bit I see here it could make sense. One question I would examine is how did you get to your NOI, and is this truly a reasonable projection? Did you account for vacancy, taxes, insurance, escrow for roof / HVAC, legal fees, repairs, management fees, etc.? Get boots on the ground and objectively decide if it is truly turn key and bring a highly reputable inspector to verify. If you accounted for all this and you're still running an NOI of $29,000, it seems like a decent deal.

A little different way to think of it: 

$415M PP = $104M per rentable unit.

$29M / 12 months / 4 units = $604 monthly cash flow / rentable unit.

I recognize this is a somewhat futile exercise as you're comparing apples to oranges, but:
If you are looking to hold this property long term and you look at it on a strictly cash flow basis... It beats the heck out of many NE MPLS SFR in cash flow right now and you're managing 1 roof / project, not 4. However, how do these numbers compare to the duplexes you were referring to? Some closing costs would be doubled, but would it be wise to pick up two duplexes instead and diversify some of your building risk? If you are going to self manage, how do you personally weight managing one building vs. two?

Contact the owner of the 4-plex that just sold for $380M and pick their brain. Find some other 4-plexes in the area and befriend them in the name of building your local network of investors and see if you can compare numbers. Some investors are surprisingly open and helpful.

Just some ideas. Best of luck!

*Disclaimer, I am biased towards 4-plex and greater, so this probably skews my objectivity to a certain degree.

@Chris Fargo - speaking of neighborhood classification, as someone who lived in NE and looked extensively at investing in N: those are two totally different animals IMO!