Weird 4-Plex.. buy or pass by?

[Nir]

Hey All!

Hope all is well

I found a 4-plex for sale for an AMAZING PRICE!

HOWEVER, 3 of the 4 units are BACHELORs, the 4th is 1-bedroom. It`s in a good city in Ontario but what worries me most is potential vacancy rate/issues due to the fact that bachelor units are less attractive on average and with higher vacancy rates as shown in most of REIN research.
Plus perhaps tenant profile is different. i.e. no retired people who are great tenants by the way(?)

Thoughts? Would you consider buying 4 units property, 3 out of the 4 bachelors or not even for a GREAT price?

Thank You,
Neil

 

[margaretcowan]

Hi Neil

I would do more research before deciding yes or no. What fuels the demand for bachelor units in the building`s area? Who are typical tenants for these particular units? What is the condition of the units and the property?

Does this investment cash flow? What is the potential for equity appreciation?

The amazing price will be partly because the units are smaller and the revenue lower.

Ciao for now,
Margaret

QUOTE (investmart @ Jun 8 2008, 10:51 PM) Hey All!

Hope all is well

I found a 4-plex for sale for an AMAZING PRICE!

HOWEVER, 3 of the 4 units are BACHELORs, the 4th is 1-bedroom. It`s in a good city in Ontario but what worries me most is potential vacancy rate/issues due to the fact that bachelor units are less attractive on average and with higher vacancy rates as shown in most of REIN research.
Plus perhaps tenant profile is different. i.e. no retired people who are great tenants by the way(?)

Thoughts? Would you consider buying 4 units property, 3 out of the 4 bachelors or not even for a GREAT price?

Thank You,
Neil

 

[Nir]

CAP Rate 10%! . in other words it cash flows beautifully with a nice positive cash flow.
On the other hand many tenant in the area are on disability or not working. what drives bachelors demand is low cost - only $500/month.
Property is very old and not in the best condition but about that I will find out more during a detailed home inspection.. thanks.

 

[CarlaJohnson]

Approach with caution! The cashflow may look good on paper, but it is only theoretical. My first thought is that the vendor is very motivated because the property has had a lot of problems.

Are you comfortable with the tenants in there now? I would bet there will be a very high turnover in this property and you will be kept busy keeping the place full. Smaller units attract more unstable tenants and they can keep you hopping. One bad tenant can infect the whole place, sending good tenants elsewhere.

Go in with your eyes wide open and with big picture plans in place. Are you prepared for several months of work to get it stable? Will there be cashflow with one or two units empty? Can this place still cashflow nicely if you convert it to a duplex?

Good Luck!

 

[housingrental]

As other posts mentioned, if you consistently collect off your tenants do you really have a 10% cap rate? What about the 3 months of no rent, the hundreds for eviction, and possibly big $$ for turnover when a tenant stops paying?

Have you properly budgeted for management costs? Often you`ll need to pay lots more $$ (ie 10% of gross, etc..) to get management who`ll spend the time needed to properly run a lower end building. If your doing this yourself you still should be, you can make money elsewhere for your labour correct?

Also re condition -

Are maintenance bills going to constantly ensure you`re cash flow negative?

Are you going to need to make aesthetic renovations to keep the place rented? What will the $5000 in flooring and $20 000 for kitchens, and baths, paint, etc.. going to do to your budget?

Are you prepared for the higher turnover costs of the tenant profile? Of having to spend $1000 + on repairing walls, painting, cleaning, etc.. possibly every year?