4-plex in Ogden, Utah analysis

[Ben Visser]

I had an acquaintance that is an agent reach out to me yesterday about a 4-plex in Ogden he may be listing soon. He isn't investor minded so I am sure this looks like a steal to him. Any help with these numbers so I can have an educated negotiation would be great!

Proposed sales price: $300,000

2 units are 2 bd 1 bath

main floor units are 1 bed, same square footage, just larger kitchen and living rooms

Leases are month-to-month and $850 each for all 3 units currently rented. $2550  total monthly

Taxes were $2k last year

Owner has owned for 2.5 years and is moving out of state, was living in the now empty unit.

Purchase would be owner occupied either FHA or conventional. Building is brick and built in the 1920's. All I have been told is that it is in "clean" condition, but I have not yet been able to see the building in person. Waiting to hear back on utility costs..

Here are my calculations:

Purchase Price=300,0000

FHA: 3.5% Down=10,500

Payment= $1470 (not including insurance or taxes)

Taxes=$2k/12=167

Insurance? (I'll guess $1k only to have some calc) =$83 mo

Capex- unknown

Management (self, but factoring 10%)= $250 monthly ($340 once it osn't owner occupied)

I'm not sure vacancy rate. We haven't had the duplex long enough to have a vacancy

Cap rate is unknown, and still relatively new to me in concept. Statewide a 2016 report stated 5.9% 

Owner occupied:

Income-expenses=NOI Guess

2550-1970=580* ($193/door "profit")

Fully Rented:

3400-1970=1430* ($357/door "profit")

I know that potential capex and water, sewer, etc may be high, but they are unknown right now.

What am I missing? What should I watch for? Would you buy at $300k or what would you offer?

[Corby Goade]

Hey Ben- this doesn't directly answer your question, but you've already received some good advice above. A couple things- I don't know what the rental market is like in Ogden, but I'm in Boise and there is a huge shortage here, and has been for years now. Basically, any unit in any part of town in any condition at almost any price can be rented immediately. I am sure I will get torn apart for this, but I really don't include vacancy in my calculations, I haven't had a single vacancy (with the exception of when I haven't listed a property so I could renovate) in nearly 15 years. It honestly has never come in to play for me. I do put more aside for capex than most people to account for the possibility, but haven't really tapped in to that.

But I digress- it sounds like you haven't identified specific buying criteria for yourself. Your analysis included several different factors. My advice is to decide what it is you want financially from an investment- appreciation? How much over what time period? Cash flow? How much per month? Per door? Cash on cash? How much? Most SFH and small multi investors don't use cap rate, that's really more of a commercial measure, but you could use it if you like, just be consistent about how you calculate it and come up with a number that works for you. Once you've come up with a specific measure that you like, understand and meets your goals, you can quickly do an analysis of a property to decide if it's worth digging in deeper.

Good luck!