4 plex numbers, do they pencil? - Posted by Trevor, OR

Posted by Trevor, OR on August 31, 2004 at 02:30:07:

My grandfather owns a 4-plex in a middle class neighborhood in town. He wants to get rid of them so he can retire without the hassle of managing the apartments. I am looking for some investment property and would like to help him get these apartments off of his hands. Of course, it must work for the both of us.

He was asking $170,000 which is about what I found comps in the area to be. The 4-plex contains two 2 bd 1 bath; and two 1 bd 1 bath. All have newer washer/dryer, fridge, dishwasher, etc. In good shape. Little to no repairs are needed. He is willing to carry the contract at 6.5% for 30 yrs, with the assumption that I will refi before the 30 yrs and cash him out. Here are the numbers below.

Asking $170,000

I have so far worked him down to $164,000 @ 6.5%

Rents total $1700/mo, can get $1750

Expenses (taxes and insurance included)

$6120 yearly ($510/mo)

NOI = $12,672 w/ 7% vacancy incl. (units are always full, and rent very quickly. 7% vacancy is a very high estimate for this property)

Cap Rate of 7.7% (@ $164,000)

DSCR = 101% (pretty low)

I’m new at this so I’m not positive that all of my calculations are correct.

I realize that the DSCR and cap rate are relatively low at this price ($164,000). This leaves me with a small positive cashflow ($147/mo), but not as large as I would hope for.

What cap rates and DSCR’s do you look for in an investment property like this? How can I structure the loan from my grandfather differently to give him his total price of around $164,000 (i’ll try to widdle it down a little more) and get me a lower payment per month, which will turn into more cashflow?

This would be easier if the owner was a stranger, not my grandfather. I kind of feel like I may insult him if I try to get the price too low. How would you approach this situation and get a higher cashflow without compromising the owners profit. I was thinking maybe having a balloon structured into the mortgage at 10 - 15 yrs and trying to lower the interest rate. I will probably sell the property by then anyway. I’m not sure.

Any help would be greatly appreciated. I would like to buy this property and have a good cashflow and also give my grandfather what he wants out of it.

Thanks for the help,

Trevor, Southern Oregon