Posted by ray on April 27, 2007 at 09:56:30:
Contact me about your 4 plexs for sale
4 Plex - Posted by Bill
Posted by Bill on April 26, 2007 at 14:24:40:
I am looking at a 4 family, listed with an agent, that has been for sale on and off for about 3 years. I like the building and the numbers are good. Is there anything creative that can be done with something like this? Owner lives out of state. Thanks.
How about some details, numbers, insight? - Posted by DaveB (NJ)
Posted by DaveB (NJ) on April 26, 2007 at 14:51:08:
Provide something for us to chew on, please.
Re: How about some details, numbers, insight? - Posted by Bill
Posted by Bill on April 26, 2007 at 15:00:27:
Sorry here you go. Traditional 4plex, 30 years old, not a converted single or two family or anything like that. Very little deferred maintanance. Rents are $425 per unit monthly and include water, sewer, and trash. Property taxes are $2900/yr. Asking price is $145,000.
Crummy Deal in my Area - Posted by Jimmy
Posted by Jimmy on April 26, 2007 at 16:48:19:
gross rents are 14% of the asking price. without knowing anything else, you are in negative cash flow territory. plus you have to pay the utes. subtract that right off the top to reduce your gross return. let’s say that bill runs $120 per month.
gross rents $1700
utes (120)
expense load (680) (see below)
$900 left for debt service. you might scrape off $50-75 a month in cash flow. maybe…
*** about that expense load. it covers repairs, maintenance, property taxes, insurance, yard care and vacancy. basically, it covers everything except debt service and owner-paid utes. for a 30 year old property, a 40% load is a good one to use. for newer properties, you can cut it back to 35%. for brand new ones, 30%.
the vacancy factor is absolutely real. and almost always underestimated by new investors. realtors like to throw out the “2% vacancy” factor. its BS. 15%% is lot closer to reality. [you want proof? ask the seller to see his tax returns for 2004-2006. he should be showing gross rents of $20,400 per year for this 4-plex if he had perfect attendance/payment. no way, Jose’ I bet the numbers he showed to the IRS are sub 18K. but, I also bet you he will not show you his tax return]
I can sell you four 4-plexes in East TX with better numbers. and no owner-paid utes. and they have ben completely gutted and rebuilt.
Re: Crummy Deal in my Area - Posted by Redline
Posted by Redline on April 26, 2007 at 23:25:05:
“gross rents are 14% of the asking price. without knowing anything else, you are in negative cash flow territory”
What % do you like to see here?
RL
Re: Crummy Deal in my Area - Posted by RJB(MA)
Posted by RJB(MA) on April 26, 2007 at 20:59:25:
Where in East Texas?
Re: Crummy Deal in my Area - Posted by Jimmy
Posted by Jimmy on April 27, 2007 at 06:53:20:
let me preface this by saying that I do not buy new properties, nor do I buy properties that other people have rehabbed. I do that myself. I’ll show you why below.
you can buy a totlly rebuilt 4-plex in my area (and I mean gutted and rebuilt) at a price that brings you between 15-16% gross rents. In fact, I have 4 of them, and you can have 'em all. managers in place. gimme a call. these things are effectively new, and the expense load will be a lot lower than a 35 year property in avergee condition. for this, I would use a 30% expense load. it will cash flow.
I would much rather buy that 35 year old 4-plex in bad condition. I bought 2 of them last May. paid $15,000 each. [they needed $70,000 in work, just to give you an idea of what I buy]. despite their squalid condition, I had tenants in all of the units paying $180 a month. if you calculate the gross rents here, it is almost 60%. but these properties were in deteriorating condition, and the rents were not sustainable. properties were virtually unsellable. [cool. that’s exactly what I want]. I proceeded to chase off the tenants and gut these places. stripped the units down to the studs, joists and rafters and started over. now, I have $85,000 in each one. fully rented at $400 per unit. that’s a 22% gross rent ratio in an effectively new property. then I refi’d them. appraised out at 122,500. did a 70% commercial loan at just over 85K (15 year at 7.05%). that got ALL of my cash out. loan payment of $770 or so. debt service coverage ratio of 2.07. that works for me.
when finished I have a cash-flow positive property with NO CASH in it, plus 37K or so in equity. and I can easily tolerate the 15 year am.
Can you see any reason why I could not repeat this process 1000 times? nope. every deal I do makes the next one that much easier to do, because of the impact these things have on my P & L and my balance sheet.
More Details - Posted by Jimmy
Posted by Jimmy on April 27, 2007 at 06:31:13:
My turf is a stretch of ETX running from Texarkana on the north to Lufkin on the south. includes Longview, Tyler, Jacksonville, Nacogdoches and several smaller towns.