Help Me to Talk Myself Out of This Quadplex in Kansas City

[Keith Meyer]

Hello BP Community,

As I continue forward with my 2018 resolution to analyze at least one deal per day, I came across this listing on Loopnet for a quadplex in south Kansas City, MO. As Kevin Bupp says, Loopnet is often the dumping ground for RE deals, so I'm mainly using the site as a tool to hone my analytics skills, and to learn how to create my own proforma's rather than take the broker's provided proforma at face value.

The Loopnet proforma for this subject quadplex in KC is kind of all over the place, so I've re-run the numbers with my own conservative estimates. I'd appreciate any feedback on my analysis, especially from investors with knowledge of the area, to help breakdown specifically why this is probably not a good deal given it made it all the way to Loopnet.

# Units	4	900 sq ft/unit	2 bd 1 bath
Avg Monthly Rent per Unit (current from Proforma)	$900
Monthly EGI	$3,600

Purchase Price	$350,000	Purchase Cap Rate	5.74%
Inspection + Appraisal Fee	$1,000
Closing Costs	$10,000
TOTAL AMT FINANCED	$361,000

Down Payment	$72,200	DP %	20.00%
Loan Balance	$277,800
Interest Rate	5.00%
Loan Terms (Months)	360	30 years
Monthly Debt Serv	-$1,491
Annual Debt Serv	-$17,895

Est. Operating Expense (% of EGI)	50%
Est. Vacancy %	7%
Annual EGI minus Vacancy	$40,176
Annual NOI	$20,088
Annual Cash Flow	$2,193
Cash on Cash %	3.04%
Monthly Rent Ratio (% of Purchase Price)	1.03%
Debt Service Coverage Ratio	1.12
Debt Yield Ratio	7%
Breakeven Rate	95%
Gross Rent Multiplier	8.71

A couple of takeaways I see:

1. Cash on Cash of ~3% is not good. An investor would need to look into alternate financing options such as Seller Financing to lower cash-in and increase this metric. Other option would be to raise rents to increase cash flow. Not being all that familiar with the KC market, I'm not sure if this particular area would bear an increase above $900/month for 2 BD 1 BA. Any KC investors want to weigh in here? (NOTE: This appears to be a newly rehabbed property, so upfront CapEx would at least probably be minimal.)
2. Other metrics such as Rent/Price Ratio, DSCR, GRM appear to at least be in the ballpark of recommended rules of thumb. I used pretty conservative figures of 50% Op Expense with an additional 7% Vacancy, so there's potential for these to be a tad higher in reality.

Are there any other red flags or key metrics I'm completely missing? I'm working to train my thought process to more quickly screen and identify deals worth pursuing, at which point I would take a deeper dive into the individual markets as a next step.

Any feedback is appreciated, and thank you in advance for helping to walk me through this exercise!

[Steve Ipock]

This would be where a fool & his money parted. 45th & Virginia is not a good area. It is not in south Kc. It’s in midtown just a few blocks off Troost. You will get 600/month maybe. You will not be able to operate these units without being here daily.

You can buy properties in blue springs, Raytown, Lee’s summit for this money & get 900 rent.

I’ll help you out. Just give me the money you were going to pay for this. I will give half back & you will make a better investment.