Estimating ARV for 2-4plexes & deal analysis

[James T.]

Hi everyone,

My name is Jimmy and I'm a recently new member and Pro member! I've been listening to the BP podcast and BP Money podcast for months and reading many of the books recommended on the show. I love learning and can't get enough! I've been lurking on the forums for a little while absorbing as much info as I can. This community is great! My fiancée and I are just starting out with REI and have been looking to house hack a 2-4 unit multifamily. We found a 4 unit recently and are hoping to get some feedback from the BP community on this analysis. We both have strong W-2 jobs, have pre-qualified for strong financing, and will live in one of these units.

Here’s how I’m looking at this, Open to any and all feedback!

• 4 unit x 2bd/2ba. 950 sq/ft each. Listing price: $1,150,000
  • Renovated comps go for $1900-$2400 in the area. The higher ends are full houses or apts with amenities
  • Property is located within blocks of a Cal State University so rental demand may be consistent
• COC ROI is fairly low, but I'm comfortable getting a ~5% return on my first deal if it means that this is a learning experience. Also, through normal economic cycles—I would think a stock market correction may be naturally occurring in 12-18 months so I can accept a modest return
• I only have exterior pictures of the property which shows it as "fine/livable". The reason I estimate $120k in repairs is because I want to increase the ARV and increase rents, which brings me to my next point:
  • A 4-unit renovated comp with the exact same specs showed up on the MLS today for ~$1,600,000! It was very nicely renovated inside with laminate hardwood and tile with nice new paint.
• Even if the COC ROI is low, it still cash flows okay and most importantly, I can use the BRRR method to pull money out after the forced appreciation and move onto my next deal.
• 20% down + cost for a renovation would tap us out completely. I know we want to leave room for an emergency budget, which is why I'm looking into leveraging an FHA/203k loan to assist with the renovations.
• Also, we're a bit lost when it comes to estimating ARV for these small multifamily units. Any insight or resources would be fantastic!

Vacancy: 4%

Repairs and Capex are low because I plan to put $120k into it

[Heath Ryans]

@James T.  i thought your purchase price had an extra accidental zero on it, then i seen you were in cali. 

Here are my thoughts, some of which you may have already considered

1) Your doing a house hack on a 4 unit, that means you only have a max of 3 units rented out for atleast a year. Make sure you have the cash to cover the mortgage, while also accounting for the payments during reno period when you don't have tenants.

2) being near a university is great as long as your close enough. However, be aware that the school year runs August-May. that leaves you with roughly 3 months of uncertainty. Tenants could choose to stay there or they could leave for the summer. Be cautious.

3) Assuming that your posted calculation was for all 4 units rented out, that leaves you with approx $170 per door per month which is great (per MY market, i dont know yours) but as you said, in terms of COC it is low. But it depends on your market averages, it could be excellent. Im not sure.

4) i would bump vacancy up to atleast 5 if not 6%

5) This one is way more important that most of the rest but i just thought of it, how are utilities metered? can you make them separate for a reasonable price? can you afford to keep the lights on in all the units while you wait to fill them?

6) electric bill of $25/m? please tell me your secrets.

7) cap ex. budget for it. yes you may have brand new systems, but brand new systems break down with time just as everything else. you may not ever see the bills, but i would make sure i was prepared for it.

8) repairs, do not underestimate the the destructive ability of tenants. Those new windows might be top of the line but i bet they'll break just as easily as the old ones.

9) comps. i believe the general idea is if you can't find solid comps in the immediate area, you go with average price per sqft in the neighborhood. I'm not 100% certain.

10) be very sure that if you decide to go the 3.5% down route that the numbers still work. It makes for a great way to get into a property, but don't let it bite you on the back end when you want to move out and 4 units rent still can't make the payments plus cash flow.

I think that's all i have. I hope some of that helps.