I am on the verge of locking up a 4 plex, just waiting for financing to come through.Im trying to avoid hard money at any costs.
Here are the numbers …
Listed Price = 160,000
Rehab estimate = 27000
Extra just in case = 8000
Total Loan amount = 195,000
Total Rent / year = 39,600 (2 units @850 and 2 units at 800)
50% rule = 19,800
Net Income = 19800
Debt service = 15600 (195k@7% 30 yrs)
Net profit per year = 4200
Net profit per month = 350 +ve
Is this a reasonable cashflow for a 4 plex in Garland suburb of Dallas?
Anyone know how easy it is to rent out in North Garland?
The other issue is that im just closing on a duplex where i will be moving into, it is already occupied and my net expenditure there is around 700$. Getting cold feet and nervous on this 4 plex deal.
Need help/advice.
thanks
Mac - North Garland is actually pretty good area to rent. However, the only thing that would concern me about this deal is that you seem kinda new at this (so TRIPLE check your rehab estimates and QUADRUPLE check the rent ranges in the area). Also, if the place is totally vacant, then it may be 1 month or 2 before you put ppl in it, assuming your rehab time is 4-6 wks. So, right off the bat you will be in the hole for a bit.
I buy from wholesalers as well and rehab costs are always a bit low and rent estimates are always a bit high…Remember, 3/2 houses in that area rent for about 950-1050.
BUT, the numbers (if they hold up), is pretty solid for that part of town.
Yes im kinda worried about getting the place rented out. Assuming it takes 4 -6 weeks to rehab and then a further 2 months to completely rent the place out to the right people thats around 2200 per month of expenses with no income to offset it for around 3 months, im looking at 6 grand to stay afloat.
But then if you want the property occupied then chances are the price will push upwards of 240k.
When I was at the property I asked around and a chap who lived there said if you just want it occupied at any cost its easy to find poorer people to occupy the property immediately (mostly Hispanic or Black no prejudice intended) but finding the right people might take a while.
Mac - That would be a HUGE mistake to rent it to just anyone. You must be selective of the ppl you are renting to in that area. You are putting in about $30K worth of rehab, so you may want to be a bit picky. Also, just renting to anyone will cost you to “chase your money”, or evict. And if you evict, you will surely get a few hole in the walls, burned carpet, etc. Then what? You will have to spend a few $Ks to fix it back to living condition. Thats gonna cost you more time, more vacancy, and more $$.
Again, the numbers look good. But N.Garland has pockets of neighborhoods, know your area! The biggest thing about DFW is that every suburbs has its pockets. If it’s in a bad pocket, you can get 800-900/month BUT you won’t get quality renters (ie IRVING - Four Seasons Golfing neighborhood is about 3 miles from straight up HOOD).
I would agree with the rest of this crowd, stay away from it.
I do quite a few in North Garland myself, I focus on the 3 bed 2 bath or 3 bed 1.5 bath sfr, I can pick them up for 45 to 55K put 10K into cosmetics (including shiny new appliances) and rent it out for 950-1050… These deals can be had all the time…
I do intend to put a 10% down payment, just wanted a very conservative scenario to chalk out.
Renting is all about risks anyway you look at it, the fact that this property is listed so cheaply for a 4 plex is because it is unoccupied and needs some rehab. Another identical property in the same community is listed at 280k.
My worries stem from the fact that I know little about the Garland area and rentals there.
In my mind its a juggling game,on one hand rent out quickly but suffer irresponsible renters,on the other hand wait and rent out to the right renter suffer a temporary financial hole.
Interesting.
Now if we take that scenario 55k for a single home x 4 = 220k for a 4 SFRs.
Understandably the SF will be more appealing but if we remove that factor for say a decrement in 50-100$ of rent and 20k from the purchase price im getting 200k for the 4 plex and 850 in rent.
I know the above may sound fuzzy, but what is the main advantage from your perspective of 4 SFRs over 1 fourplex?
I think it is mostly a personal preference, I think that should I get tired of being a landlord, it is easier to unload SFR to retail buyers then a 4 plex. Financially I think the multi family is a lesser risk due to the fact that you most likely will not have all units vacant at the same time i.e. you might suffer a little bit from lost rent but not as much as on a sfr.
In the end it is all about what makes sense to you. :beer
Mac - I have both multi-units and SFHs. Other than appeal and a bit higher rent, you have to think ‘appreciation’. Yes, I will get slammed for speculating, but HISTORICALLy, SFHs appreciates at a faster rate while multi-units goes up much slower if at all. Also, heavens forbid, the whole complex (in which your 4plex is part of becomes that “bad area”. With a house, you can just sale off and be done with it…with a multi, it still can be done, just harder to do.
Why? How does the math compute?
I dont understand why you fix this 20% number , some people like to spend as little as possible out of pocket.
E.G. consider this if I put 20% and cashflow the same multiplex for 1666$ or if I put 10% and cashflow it 1000$ I will go with the latter.
20% makes no sense on a discounted property if you are able to get reasonable rates, 6.5 -7 % is a fair rate for 10%.
I don’t understand your rationale about putting 20% down. The amount you put down has absolutely nothing to do with being able to afford the property. Is it safer to put 20% down on a property bought at market value or put nothing down on a property bought at 50% of market value?
I have bought dozens of rentals with absolutely nothing down; have never paid PMI; and have a VERY LOW LTV.
Well if thats the way you go about it you’ll need a long time between property purchases.
with the same 60k if I can squeeze 4 properties in a shorter period of time and my cash flow starts sooner and builds faster than yours, which is better strategy for me as opposed to paying 60k for 1 SFR.
Also if you want to consolidate and sell it at market value later on the less you put down yields max ROI.
You assume cash flow means little , when you look at MF appreciation is minimal compared to SF, so there is a basic difference in appreciation right off the bat.
It boils down to why pay 20% for a 2% appreciation in value for a MF.
Mac - One thing that I didn’t see on your expenses is HOA due per unit. In most of DFW, these 4plex are part of a bigger complex. There is usually an HOA (Home Owners Association) fee per unit. This will be a FIXED monthly expense you will need to factor into your equation.
Mac - Based on HOA dues and your previous $$ breakdown, this deal looks like a LOSER. You stated before that your net profit would be around $350/month…but now you have an extra $440 per month. I realize this includes insurance and you already included that in your 50% rule. Even so, it looks as if you will be in the negative.
Another thing that has not been mentioned is financing. Right now the MAX LTV you are going to find on a 4-plex is 75%. The days of 10% down on a property like that are gone. You may want to speak with your broker before you go any further.
In my mind its a juggling game,on one hand rent out quickly but suffer irresponsible renters,on the other hand wait and rent out to the right renter suffer a temporary financial hole.
This attitude scares me to death. You should never rent to people without screening them carefully. One bad tenant can cost more than one year of vacancy, so why not put a good tenant in the place? I would rather tell 1000 prospective tenants “no” than let one in who is going to trash the place, get evicted, file frivolous lawsuits…whatever.
I have passed on rather nice properties with good potential just because of bad tenants. It can be hard to get rid of people once you assume ownership, and it’s hard to know what kind of hidden problems a property may have due to careless or malicious tenants.