***Please note: This home received a price reduction to $399,000 on 11/23. My calculations below will be significantly improved by this reduction***
Fourplexes are great for entry level investors.
Some new investors will “house hack” a fourplex by living in one unit and renting out the other three. This strategy can also make the loan process easier because you are buying a primary residence along with the investment. In many cases, you can live with little or no monthly payment, or even clear a monthly profit.
For those seeking financial independence, the house hacking strategy is a compelling and dramatic way to make big financial strides toward their financial freedom.
For more traditional investors, a fourplex offers greater cashflow security. In a single-family home, you either have it rented out or you don’t. An extended vacancy in a single-family home can quickly wipe out any accrued profits.
In the case of a fourplex, a single vacancy still means you have 75% of the cashflow coming in. It would be a rare situation to lose all four tenants at the same time.
A fourplex offers an attainable way for entry-level investors to get into multi-family investing without spending millions of dollars on an apartment complex. My analysis below is based on leasing out all four units.
This particular fourplex is nice because it appears to be fairly turnkey. The seller states that much of the major improvement work has already been done. The current rents appear to be below market rates, so there may be some opportunity for improved future cashflow.
- Near Hwy 87 & Mesa Ridge Pkwy
- 8 Bedrooms
- 4 Bathrooms
- 3,000 Square Feet
- Multi Family
- Data current as of Nov 14, 2018
- Contact me for address & current status of this property
Financial Analysis for Potential Investor Purchase
This property is listed at $419,000, and that is the number I used for my analysis. The seller is receiving $3,075 monthly rents, at four different monthly rent levels. The average rent for this area could bump that number up another $300-$600/month, but I used the current rent rates.
With a 20% down payment of $83,800, I budgeted just under $1,000/month for property management, repairs, and vacancy. I also budgeted estimates for taxes and insurance. After allowing for all these expenses, the purchase cap rate would be 6.02% and the cash-on-cash return would be 3.59% in the first year. By year five, the cash-on-cash return spikes to 13.08% and the annualized total return is 25.44%, assuming a 5% annual income and value increase, which would be less than half of what we’ve experienced the last five years.
Based on these estimates, the positive cashflow from this property would be $250/month, even when factoring in an 8% margin for vacancy and maintenance. Of course, if you experience a reduced vacancy rate or repair expense, the cashflow would improve.
This fourplex also backs to open space, adjacent to a creek, and has a playground area in front. All it needs is a new investor to provide a welcoming home for current and future tenants.
This home could have great potential as a cash-flow rental. I’d be happy to talk more with you about this home or your investment goals – please email me at JD@TheCircaGroup.com.
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Disclaimer: Circa Group, LLC, dba Circa Real Estate Group, recommends that you seek the advice of your accountant and financial advisor before making investments. The estimates presented are based on a variety of assumptions, including information from third parties, and may not reflect the actual return of your investment. This information is provided for illustrative purposes only and is not to be constituted as investment, legal, or tax advice.
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