In this Deal Analysis, Chris and I look at a fourplex in Colorado Springs that was recently purchased by Denver investors. This is a great example of an off-market fourplex that will generate solid returns.
- Listen to the podcast “#65: Using a HELOC to Acquire a Colorado Springs 4-plex” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
These clients are investors from Denver looking to take advantage of the lower price points in the Springs. Leah helped them close on a different property a few months earlier. Once they got that property up and running, they were ready to make the leap to a multi family unit.
Investment Property Details
This was an off-market fourplex that I found by speaking with a listing agent. The buyers I was working with didn’t want the property that was on the market, so I asked the agent if he had anything else. He told me about this property, and I realized it fit exactly what Leah’s clients were looking for.
Appealing Features of the Property
This fourplex consists of 2 bed/1 bath up/down units. All of the units are in good condition and the property is in a desirable part of town.
Property Contract Details
The seller wanted $695K for the property, and the clients agreed. This was an easy transaction for both sides—the seller got the price he wanted and the clients didn’t have to compete with hundreds of other buyers.
The clients asked for a 45-day close because they were doing a Home Equity Line of Credit (HELOC) and needed that cash to fund the purchase. The seller agreed since he wasn’t in a hurry and just wanted to hit his price point.
Overall, the property was in good shape, except for the electrical panels. The main and four subpanels were all Federal Pacific Stab-Lok panels. These electrical panels have been discontinued because they are a health hazard. They don’t trip when they need to, which causes fires.
The seller’s viewpoint was that they haven’t been an issue yet, so he didn’t want to replace them. I always tell buyers that these types of panels aren’t an issue until they’re a big issue, so I recommend replacing them. The buyers had a good long-term point of view chose to replace the panels so they wouldn’t have to worry about them later.
Property Financing Details
I used the Rental Property Analysis spreadsheet to run the numbers on this fourplex.
The current makeup of rents is $975 for 2 units and $1039 for the other 2 units. In the current market, they could easily get$1100 to $1150 per unit, so the buyers have significant upside.
As the leases turn over the next 12 months, they can steadily move toward that number. It may take a couple of lease turns for the lower priced units to get to that level.
Property Operating Expenses
All utilities are billed back to the tenants at 100%, so the only costs for the clients come from trash and landscaping.
First Year Returns
Currently, their cash flow is just over $4K a year, with a 4.7% cap rate and overall return of 20%.
If we run the numbers at $1150 per unit, their cashflow increases to nearly $10K a year and puts the fourplex at a mid-5% cap rate:
As you underwrite properties, it’s important to understand that there is a range of outcomes. I recommend underwriting both a conservative and optimistic estimate to see all of the possibilities. In reality, you will probably fall somewhere within that range.
The clients are very happy with this property, and it’s right in line with what they wanted. With the way real estate is trending in the Springs, they are expecting significant appreciation. They are taking the long view on this property and are happy to be patient and let the market do its thing.
Connect with Us
If you’re interested in finding your own investment property or shifting your investment game plan, reach out to me. I’m happy to help you figure out the best move and find a property that fits your goals.