Buying my first multi-family and I'm in need of advice. The list price is 125k and purchase price is 115k. Three of four units are leased for a total of 1,325. The repair on the fourth unit is about 5k and repair to the roof is about 10k. The area is not appreciating and is home to many individuals on the sex offender registry. There was negative population growth of the city of about 2% in 2017. The current CAP rate is 8.6% and Cash on Cash is 17%. The sales comparison approach value is 135k and income approach value is 156k. Is this a good deal? Should I be concerned with high crime and quality of tenants?
Real Estate Broker · Dallas, TX · Member since 2016 · 248 posts · 240 votes
5y
Sounds like you are considering a purchase in a D neighborhood. Location, location, location. My wife and I have been investors since 2013. We have investments in A neighborhoods and a C+ neighborhood. We have had little to no issues with our tenants in the A neighborhoods. Paying rent on time has been an issue for tenants in the C+ neighborhood even before the pandemic. Tenants in our less expensive units have also done the most damage to our property. Also, we have only had to file for eviction against tenants in the C+ neighborhood. If this had been our first property not sure my wife would have been on board with purchasing more. Hope this helps.
Investor · Member since 2020 · 201 posts · 92 votes
5y
At first glance, I would be concerned about the quality of tenants and the negative population growth. Remember, location is an important factor when being a landlord. If your properties are in high crime areas or low-income areas, then you will most likely have more problems big and small compared to properties in different neighborhoods. Both can be profitable, but make sure that you know what you will be dealing with in terms of tenants, longevity and potential issues.
Real Estate Broker · Dallas, TX · Member since 2016 · 248 posts · 240 votes
5y
Sounds like you are considering a purchase in a D neighborhood. Location, location, location. My wife and I have been investors since 2013. We have investments in A neighborhoods and a C+ neighborhood. We have had little to no issues with our tenants in the A neighborhoods. Paying rent on time has been an issue for tenants in the C+ neighborhood even before the pandemic. Tenants in our less expensive units have also done the most damage to our property. Also, we have only had to file for eviction against tenants in the C+ neighborhood. If this had been our first property not sure my wife would have been on board with purchasing more. Hope this helps.
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
5y
Repair of $5k on the fourth unit probably means similar on the other three when tenants move out. I agree with @Craig Anderson and @Rob Lee. The neighborhood sounds risky. Collecting rent will be a headache. Filling units with quality tenants will be as well. You might find yourself compromising to get tenants in. Unless you have experience investing in this area, I'd give it a pass. Or maybe find a partner who does have this kind of experience.