What do you think of this 4-plex?

[shanaling]

Located in Rialto, CA
$485,000

Owner selling due to tenant not paying rent, causing him to fall behind on loans

Unit 1 3/2: $1250
Unit 2 2/1: $925
Unit 3 2/1: $875
Unit 4: 2/1: $850

Needs some TLC - repair costs ~ $15-$30k

Siimlar 4-plex across the street is pending for $547k

Any thoughts on this deal?

[Papa bear]

Back of napkin tells me over priced or under rented.  I wouldn't touch it in my market.


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[jinga nation]

Back of napkin tells me over priced or under rented.  I wouldn't touch it in my market.


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Waaayy over-priced. I don't know Rialto demographics, but I wouldn't touch that in my market, too.

[zephyr911]

Located in Rialto, CA
$485,000

Owner selling due to tenant not paying rent, causing him to fall behind on loans

Unit 1 3/2: $1250
Unit 2 2/1: $925
Unit 3 2/1: $875
Unit 4: 2/1: $850

Needs some TLC - repair costs ~ $15-$30k

Siimlar 4-plex across the street is pending for $547k

Any thoughts on this deal?

My rental mortgages get paid if even 50% of the expected rent comes in. Don't buy a property where successful debt service will depend on getting everything you're supposed to.

If tenants were 100% reliable, most of them would be homeowners.

[Poorman]

These are ok numbers for California.  You are cash flowing positively, which isn't easy to find in a lot of markets.

My concern would be why is the tenant not paying rent?  Is this an isolated situation due to poor screening by the owner, or is it more representative of the tenant pool in the area?  I don't specifically know Rialto but it's adjacent to San Bernardino which has high crime and a rather difficult tenant pool, so you should spend some time in the neighborhood at different times of the day and night, and decide if this is an area that you feel comfortable with.  Also, I would want to see the operating statements and leases for the property to get a sense for what the historical rent collections have been like and how long the tenants have lived there.  You could also try calling some property managers in the area to get their opinions on the neighborhood.

[arebelspy]

It won't help you FIRE anytime soon, due to the low cash flow, but if you're okay with an asset that does just above break even for a fair amount of work (multiunit is work, have no doubt about that--that's why you typically look for closer to the 2% rule for MF, and this doesn't even hit the 1% rule), this could be a fine long-term play, especially if you can get some fixed, low interest debt for it and hold it for 15-20 years.  It's a good way to get rich slowly, but not a spectacular investment.

[Kitsunegari]

If tenants were 100% reliable, most of them would be homeowners.

A-men!

[shanaling]

Thanks everyone for your responses - it was very helpful to read everyone's input. I actually turned it down.

A few days later, the owner said he is willing to sell the note for 65k, and I assume the loan of 390k...

Does this mean he got an offer and he is doing owner financing? Thoughts on this deal?

Thanks so much!!

[arebelspy]

Thanks everyone for your responses - it was very helpful to read everyone's input. I actually turned it down.

A few days later, the owner said he is willing to sell the note for 65k, and I assume the loan of 390k...

Does this mean he got an offer and he is doing owner financing? Thoughts on this deal?

Thanks so much!!

No, it means he has a loan of 390 (so some equity) and is willing to sell that for 65k in his pocket, and you'd take over that loan, it would stay in place.  Essentially you'd be paying 455k, with 65k down and a 390k mortgage.

You'll have to check that his loan is transferable, and doesn't have an acceleration clause (aka due on sale clause).

Also if he's behind on the loan, as stated in the OP, you'll have to catch it up to current.

See if you can get it for 0 down and have him carry back a second for that down payment.  ;)  (And make the second like 40k, instead of 65k.)

Also I'm just making up numbers, do some due diligence and comps and cash flow statements to figure out an actual price that it's worth.  It may be the case that it's only worth the loan +10k in his pocket.  Or maybe you just take it over with no money down, and no second.  Or maybe he should be paying YOU to take it over.

[shanaling]

Thanks Arebelspy. That was very helpful. I'm really new at this.

I found a 4-plex about 5 buildings down the street, with the same number of rooms/bathrooms that sold for 450k in May. And it was renovated. So the numbers for this 4-plex didn't really make sense for me.

[Bearded Man]

I always wonder why someone is selling something if it's so great. Most of the multifamily in my area are cash flow negative at the prices they go for in my area. I looked at a duplex the other day and it had some deferred maintenance and was way overpriced. It still sold. Not sure why, as it was barely bringing in $400 a month after all expenses between the two units, and that's assuming I could get high rent, for the so-so condition they were in.

I'm torn between just buying another single family to live in (thus turning my current house into a rental) or downsizing to one of my cheaper houses and renting out my McMansion since the Seattle area market is now so overpriced.

[SwordGuy]

I wouldn't touch anything with rents coming in at less than 1.5% of after-repair cost.  Especially if it cost that much!