Hi all,
I'm currently under contract on a 4 plex. The building was built in 92. Inspection came back pretty clean aside from some organic growth in the attics which is common in my area. A remediation company is coming out Tuesday to give a quote. There are lots of little items/deferred maintenance that I and a buddy or my father could knock out in a day or two and it could use a good deep clean. (Trees overhanging roof, electrical sockets missing covers, moss growing on roof, one square of carpeting needs to be installed on unit 2, etc.)
Electric is all individually metered, panels look good. Water is one meter with individual shutoffs. Water heaters are past their expected life, so I'm assuming I'll be replacing those within 5 years.
Siding, roofing, crawlspace, sewer scope all came back solid. Some cast iron pieces to the sewer pipes, inspector recommended reassessing that section in about 4-7 years.
Purchase Price: $735k with a 10k seller concession toward closing costs.
I'm putting down 25% and have secured a loan at 5.875% which puts my mortgage right at $3,900/mo with taxes and landlord insurance.
Owner currently pays WSG. $325/mo. Tenants pay all other utilities.
Units are 550 sqft 2BR/1 bath. Street parking (lots available), shared coin op laundry on property. There are also 5 storage units, all 5x7, in a separate building in the middle of the shared lawn area. Currently playing with the idea of renting these individually for an additional $40/mo. They are currently all occupied by the owner's stuff.
Current rents:
Unit 1 - Owner occupied. Selling because of her health. She's owned it 4 years. Currently has two large dogs (110, 130lbs) and the female is pregnant. She is requesting a rentback for 6 months so that she is able to find a new place after closing. Rentback would be $1400/mo
Unit 2 - Vacant - She was working on renovating it. Has brand new flooring, paint, SS stove. Does not have a fridge (approx 1k cost to match other appliances)
Unit 3 - Rented to tenants. Tenants are smokers ( I would eventually have a non smoking policy) They are 2 months into a 1 year lease
Unit 4 - Owner's boyfriends kids living here. Supposedly paying $1200/mo for rent. No lease in place. Terms of closing are that they would be on a lease at $12-1400/mo and that lease would also be personally guaranteed by the owner.
I am in an expensive market with a housing shortage, so vacancy is virtually non existent. I've been watching Zillow and the closest comp I've seen come available for rent was listed at $1,150 and $1,250, but I feel that manager underpriced the market as they were rented out within 72 hours. I believe I could potentially get $1,400/mo for each unit, but easily $1,300 conservatively.
I could also eventually sub meter the water and flip those charges back to the tenants. Combined with renting the storage there is some opportunity to produce more cashflow than there already is.
Real estate in the area this fourplex is located is up 30% yoy and is (in my opinion) directly in the growth equity wave. I passed on a fourplex for 1m a year and half ago in a city 10 minutes away and that same four plex just sold for 1.8m. Granted, those were larger units, but the fact that this deal cashflows at all from day 1 makes me excited as cash flow is very rare in my market.
Also, I would be self managing this property and that is something I have wanted to learn and experience for awhile now. A huge pro is it is also about 5m from my house. I can get there very quickly and would easily be able to keep an eye on it.
Pros: No major problems aside from the growth in the attic which I'm getting a quote for and will negotiate with the seller.
-Close to home
-Storage units
-Cash flows in a non-cash flow market
-Potential for some huge appreciation over the next 5 years as the town grows
Cons:
No designated parking
3 inherited tenants that I would not be able to screen to my own criteria (large pets, smoking)
Probably 10k in expenses between carpet, paint when those tenants move out.
The unknown
I'm regurgitating as much info as I can, but I'm sure that I'm forgetting some important aspects or information in this post. Please ask any questions you feel I'm forgetting - I would be thankful for the feedback.
Criticism welcome.