Help with quad analysis

[Brian H.]

I have an accepted offer on a quad in Louisville. I thought I'd done a good bit of due diligence prior to the offer but since getting the property under contract I'm getting cold feet. I'll explain why in a moment, but first the basics:

Four units, 2/1 each, 950 sq. feet. Three are rented at $475, 500 and 545. I plan to O/O the fourth unit, which is in move-in condition.

Purchase price: $155,000
3.5% down: $5425
Taxes: $2610
Insurance: $1851

Estimated payment (PITI): $1043.00, (P&I only): $672.

Income based on unit 4 renting at $475 (conservative estimate): $23,940
NOI: $11,970

Monthly cash flow: $325

I felt like this was a good deal a week ago but when I made the offer I was mistaken about the taxes and insurance on the property. They are nearly double what I was led to believe. Secondly, I'm having a tough time interpreting the expense breakdown I received for the last three years from the PM company. At best they're confusing, at worst they're also quite a bit higher than I anticipated (nearly 80% of the rental income last year. The previous two years were around 55%).

One more major question mark in this whole thing is that the two higher priced units have long-term tenants (around four years) but the leases expired over three years ago. I find it odd that the leases weren't renewed and the rents were never increased, especially given the disparity between their prices ($45). If I can raise the remaining units' rents by even $25 I will feel better about this one, and that's what I initially planned to do but when I saw that the leases haven't been renewed it just made me wonder. The units are fairly spacious compared to most I've looked at, and the property itself is centrally located near the intersection of two major interstates, right on the bus line and within five minutes to a large hospital complex. It's not the best neighborhood, I would categorize it a C, but I feel perfectly safe there.

By the way I realize that the numbers will be a little different the first year than what I'm quoting since I'll be living in that fourth unit. But looking at it purely as a rental...what say ye?