Austin Fourplexes
Davis Investment recommends a simple formula when considering the purchase of a four plex by a real estate investor: location + considering the past, present and future of the property.
Past
A good rule of thumb is that a real estate investor must evaluate a given property on the merits of the performance of the past 2 years of ownership. How long have the current tenants lived there? What is the rate of tenant turnover? How much have the rental rates gone up in that time frame? Have any improvements been made to the property? And has the neighborhood economically improved?
Present
How is the investment property financially performing at this time? What is the economic information for the neighborhood and tenant base? Is the prospective property 100% occupied? How much in total security deposits do the tenants have in each unit? Are there any delinquencies in rental fee? What is the overall condition of the investment property? Will the property continue performing as currently listed?
Future
Will this property continue to increase in value? Will rents get higher? Are there any growth changes in this area that would enhance this investment?Davis Investment also suggests that the prospective real estate investor consider the following tip with it comes to four plexes.
Location, Location, Location
Select very wisely when purchasing and know that economic location is fundamental to capital gain. Consider that most of the quality four plexes that fit these criteria are located centrally and will trade at higher (GRM) gross rent multiplier.
Consider Higher End Properties Over Lower End
Although, location for some of the more quality areas out performed there cash flow with appreciation, four plex evaluations must be made on the real numbers and not a proforma.
Davis Investment recommends looking at past rent rolls and expenses and what is on the books today before purchase. For future tenants, its important to know about the management and past and current tenants. Essentially, a real estate investor is buying a business when they invest in a four plex and you need to protect your investment strategy as much as possible by knowing what you are getting into.
Consider Cash Flow Your real estate investment must be at least at a 25% down payment. The Davis Investment team suggests that you take gross rent multiplier (GRM) numbers for this kind of investment very seriously.They should be in the range of 7 to 8 times gross for most of the Austin four plex neighborhoods. Your better locations will trade at higher GRM and would require more down payment to create the cashflow you desire.
Davis Investments recommends using a 9 to 10 GRM for your better (B) areas and 11 GRM for (A) areas like the downtown and university neighborhoods. Keeping these figures in mind an investor will find better success in owning this type of investment.
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