5 Plex

General Real Estate Investing
1

I called a FSBO sign and the seller has a 5 plex he wants to sell. Isn’t super motivated so probably won’t be a deal but wanted to get some opinions about what price would make sense to do this deal. Here’s what I know…Seller has moved and lives 2 hours away and wants to sell.

Here’s the details:
Property is in a good neighborhood – right across the street from two schools and the central office of a school district. I’m wondering at what price this deal would make sense? …Asking price is 159K

Unit 1 $475 includes garage with remote
This unit is on the lower level and has 2 bedrooms. Full bath and shower. Tenant pays own
electricity and heat. No
central air.

Unit 2 $485 includes garage with remote
This unit is a large 2 bedroom with a lot of storage. Full bath and shower. Has central air.
Master bedroom has double closet. Tenant pays own electricity and heat.

Unit 3 $485 includes garage with remote
This unit is a large 2 bedroom with a lot of storage. Full bath and shower. Has central air.
Master bedroom has double closet. Tenant pays own electricity and heat.

Unit 4 $435 no garage
This unit is on the top floor (penthouse) with 2 bedrooms and a large storage room. Full bath
and shower. Has central air. Tenant pays own electricity and heat.

Unit 5 $305 includes electricity (all electric unit)
This unit is what we call a studio apartment, it’s the size of a dorm room plus an additional room
which is the bathroom. Corner stand up shower. Heat is small electric built in unit. Electric each
month is minimal.

•Landlord pays for water and garbage. Landlord pays only the common area electricity. Current rents
are far below market value.
•Laundry generates on average $100/month.
•All appliances, kitchen cabinets, furnaces, water heaters are all in great shape and modern.

•Around 1990 (just prior to my purchase), entire building was remodeled from unit 2 on up.
•All New windows were put in 2005.
•Added 3rd central air-conditioning unit mid to late 90s.
•New gutters and gutter guards mid to late 90s.
•Entire basement was gutted and redone forming Unit 1 and 5 plus laundry room late 90s.
•Flat roof was reconstructed into a pitched roof late 90s.

Expenses/Month:
Taxes $257
Insurance $133
All Utilities $239
Lawn/snow removal $50/month

•Appraisal Estimate through MidWest One has
it valued at $187,200 (see below). I’m asking $159,500

2

Hi,

A five unit property and larger is a commercial property following the 50 / 50 rule.

Half of adjusted gross income goes to expenses and half of adjusted gross income goes to operating expenses and cash flow (NOI).

Your adjusted gross income is $1966 divided by two equals $983

So adjusted yearly gross is $23,592 divided by two (50 / 50 rule) equals $11,796

Your cap rate 7.39 which is a class B property and should be between 10 and 20 years old?

So this was built before 1990 and is as described a non - conforming 5 unit building? Non - conforming meaning not originally designed as 5 doors!

You might be asking to much for it today according to rents (Income)? Are rents under market?

              GR
3

Hi GR! The building was built in 1911 and the rents probably should be closer to $550/month. The seller told me he’d consider any reasonable offer. He said he’s received offers, but they haven’t been “reasonable.”

4

Hi,

It is worth more money as 4 units than five! Could the studio apartment be added to one of the other unit's?

I would market this as a 4 unit with current under market rents and of course new owner to blend studio into unit number ?

This way this property would support your $159k price with good positive cash flow!

As 5 unit’s this is subject to commercial apartment property standards and the 50 / 50 rule!

The 5th unit may need to be blended before appraisal and closing as the lender may not want to lend on it as a 4 unit with 5 doors!
Talk to a local mortgage lender on what needs to happen?

                    GR
5

I’m considering buying this property. What price would make sense? I think the 159K is considerably too high.