Ogden, Utah Non-conforming 4-plex purchase 4 bed 4 bath

[Ben Visser]

Offer in and accepted. I ran preliminary numbers to get to the offer of 220k (Utah market is nuts, so offered and then saw the property)so its time to get more in depth. The city has shown a certificate as an allowable non-conforming 4 plex.

4plex, 2 duplexes side by side all 1 bed 1 bath. Current rents seem low. $1700 total. (900 where one family rents together, 400, 400)

Doing fha owner occupant. Proposed rent hikes for 3 units 1st year (owner occupying 4th, $625 each x3) is 1875. Expenses of $2106 (10% prop management fee, but will self manage year one at least).

Year 1

Mortgage $1097 (214k @ 4.6%)

Taxes      81

PMI 143 (0.80%)

Propmgmt 188 (10%)

Vacancy   94(5%)

Maint        94

Capex 188

Utils          120

Ins             83

Biz Lic       15

Total exp 2102

Income    1875

Total -227

That leaves us at near break even year one. Year 2 at 638 (2% increase) a unit. Rentometer shows average rent for 1bd 1 bath is $659

Income: 2551

Exp: 2301

Net: 249

We will be self-managing the first year so that narrows what would be coming out of pocket. We are planning FHA and the seller has acknowledged that plan (owner agent). He owns a construction company and seems to be aware he will have to do repairs. If that is done, I don't expect significant repairs for some time.

Negatives: 

1 bed and 1 bath isn't ideal, but Ogden is a rental market. It seems there won't be major issues renting out.

Rents are very low currently which means we may have some initial turnover

As a non-conforming there is unlikely much that could be done to improve or enlarge the current 2 buildings.

Not quite $100 per door positive cash flow right off.

Positives

It is west of Washington and about 30th (for the locals here). Not the best part of town, not the worst. neighbors appear to be doing repairs and remodels.

Rents are rising faster than 2%. I think we could increase them higher than estimated.

Home values are rising in area

It is very close to our other duplex meaning less commute to self manage.

What are your thoughts? Am I missing anything?

Thank you for the input in advance.

[William Hochstedler]

@Ben Visser

Do you own rentals in Ogden?  The area you describe is pretty rough.  If you're not familiar with the Ogden landscape--particularly if you're owner-occupant--spend a bunch of time in the neighborhood as part of your due diligence.

Also, it's not uncommon to have a rough stabilization period.  To get good tenants into these units may involve evictions and several weeks of vacancy before you find anyone that passes background and credit checks.  Does the seller have payment history?  Are the current tenants paying on time? Do you know why they're selling?

No doubt there are good, well managed properties.  But in this neighborhood, there are also properties that can take six months to a year to fully stabilize.  So be prepared for some challenges.

Ogden can look really promising on paper, but many properties require pretty intensive intervention.  However, it is certainly on the upswing and represents the least expensive housing on the progressively unaffordable Wasatch Front.