How do you pick a good Duplex - Fourplex?

**SlowDalPangEe** · 02-05-2009, 11:22 PM

As many of you agents and brokers have noticed, many agents who list duplexes, triplexes, and/or fourplexes, have absolutely no idea on what they are doing. In Southern California, any or all critical values/indicators are zero on the MLS ie gross rent, vacancy rate, effective gross income, net operating income, GRM, Cap rate, etc.

This being the case, how do you guys pick a good small investment property? Based on the description and/or pictures, all of these properties look like junk. Also, it's hard to gauge the comparables since the market's so slow. I'd hate to spend several thousand dollars on an investment property and have it sit vacant.

Note: I noticed that MLS reports Cap rate, not GRM. Shouldn't 1-4 units be GRM? That's what I've understood from appraisals using income approach.

TIA,
K

**Greg** · 02-06-2009, 05:19 AM

Don't use any numbers out of the mls, a lot of agents don't know how to use a calculator.

Go look at a bunch of properties, with a buyers agent, and then do your own research on the ones with renters. Have your agent get the info you need from the listing agents, such as leases, utilities, HOA fees, taxes, etc.

Compare the info from different properties to learn what you can expect from the market.

Look in the paper and on craigslist to check on occupancy rates.

The lack of readily available information means there are deals for those willing to put in the effort to find them.

**VAInvestor** · 02-06-2009, 11:18 AM

Greg - great point above. The people that take the time and research the information will have a huge advantage over those that just browse the MLS and throw their hands up at the lack of info.

Go, look at the house, find out what comparable rents are, see if units in the neighborhood are renting quickly or sitting vacant for a long time.

GRM vs. Cap Rate: GRM is a very crude way of comparing properties - I would advise not to use it, even for duplexes. Example: 2 duplexes have identical GRM, but one has all the utilities separately metered and paid by tenants, and the other has 1 meter and the owner is responsible for everything (water, electric, gas/oil, etc). Same GRM, but Net Operating Income and thus Cap Rate difference would be sizable.

**SlowDalPangEe** · 02-08-2009, 08:46 PM

Thanks for the good info!

I am actually a licensee, but not too experienced with investment properties. All I know is from ideal, hypothetical situations and from what education has taught me; nothing from experience. So all the work that an agent would do for me, I would do for myself. No problem there.
Greg, when you stated to

**VAInvestor** · 02-09-2009, 04:51 PM

Reserves are by far the best way to prepare for hard times with no tenants - nothing will beat having 6 months of payments in the bank (or more). As far as figuring out how long vacancies are, there's a number of things you can do. If you are looking on craigslist and see a rental unit in your area, do a search and see how long that person has been posting that unit. Has the price gradually dropped? Are people in the postings offering 1 month free rent? 2 months? What kind of incentives?

Whether you look on craigslist, paper, or somewhere else all depends on your area. We rent primarily to college students and so craigslist is pretty much our bread and butter as far as getting tenants. It may be different in your area and the primary indicator will be the local paper - or the neighborhood for rent signs, or something else. Gauging the strength of your local rental market will take some time.

**SlowDalPangEe** · 02-10-2009, 03:41 PM

Originally Posted by VAInvestor

Reserves are by far the best way to prepare for hard times with no tenants - nothing will beat having 6 months of payments in the bank (or more). As far as figuring out how long vacancies are, there's a number of things you can do. If you are looking on craigslist and see a rental unit in your area, do a search and see how long that person has been posting that unit. Has the price gradually dropped? Are people in the postings offering 1 month free rent? 2 months? What kind of incentives?

Whether you look on craigslist, paper, or somewhere else all depends on your area. We rent primarily to college students and so craigslist is pretty much our bread and butter as far as getting tenants. It may be different in your area and the primary indicator will be the local paper - or the neighborhood for rent signs, or something else. Gauging the strength of your local rental market will take some time.

VAI, very good points. I agree that there's alot of time to be taken to get a good understanding on how the investment will do. Again, thanks for the help!