Analyzing Multifamily in Tacoma, WA

[Megan Heffernan]

I just finished @Brandon Turner's How to Evaluate and Offer on Rental Properties webinar, so I wanted to apply that knowledge in the market that I'm interested in, Tacoma, WA.  My goal is to cash flow $100 per unit per month and get a 10% cash-on-cash return.

The property that I'm evaluating is a fourplex consisting of four two bedroom, 1 bathroom units build in 1979.  I found it on Redfin and the list price is $549,950.  I evaluated this using a spreadsheet that I created after watching Brandon's 4 square method.  I don't have pro, so I don't have access to the rental property evaluation tool.  I used the rental prices from Redfin ($995, $1050, $950, $1050) as well as the expenses like taxes, insurance, etc.  I assume 5% vacancy, 7% repair costs, and 7% capex.  The listing says that the roof needs repair so I'm including $20,000 to fix it up ($10k for the roof, $10k for other repairs).

Without any modifications, this is not a good deal (Cash Flow: -272/mo, Cash-on-cash return: -2%)! 

What if I raise the rent?  According to myrentrates.com, average rent is $1,350.  I'll assume that I can increase rents to $1100 on all four units.  Still not a good deal (Cash Flow: -$16/mo, Cash-on-cash return: 0%)

What if I lower my down payment?  My initial assumption was 25%.  What if I can do 20%?  That's even worse (Cash Flow: -$170/mo, Cash-on-cash return: -2%), which makes sense since my cash flow is worse

What if I lower the offer price?  If I reduce the offer price to $422k, it's still not a good deal (Cash Flow: $403/mo, Cash-on-cash return: 5%), but meets my cash flow requirements.

What's the magic number?  $340k (Cash Flow: $770/mo, Cash-on-cash return: 10%).

It seems incredibly unlikely to me that the seller would accept an offer over $200k below their asking price.  Are there any other variables that I can change to make this more palatable?  Maybe there is a variable to tune that reduces my cash flow but keeps my cash-on-cash return the same?