Alright guys here are the numbers let me know what you think.
Mortgage 125k
Fully Rented 850…1st flr…800…2nd flr.
ea unit has its own electric and gas meters.
landlord water 600/yr
taxes 3500 per year
insurance 1700
Hot or Not?
Your cap rate is looking like its over 9 percent if you dont include a vacancy rate. I shoot for a 9 percent minimum on all my deals including a 7 percent vacancy rate. Assuming you are putting down 10 percent your cash flow is positive and your cash ROI is still 14 percent or so in the first year. Not a great deal but a decent one to get started on IMO.
Here’s how I see this deal:
Gross rents: $1,650
Operating Expenses: $825
NOI: $825
Mortgage Payment ($125K, 30 yr, 7%): $832
Monthly Cash Flow: $7 LOSS
Since I like to MAKE MONEY, I would say that this is a terrible deal, especially for a first deal. You need to start right - by making money.
Good Luck,
Mike
109k @ 7% would work
or
114k @ 6.5% if you can get it.
Buying right is the key!
Mike, please explain why this is not a good deal. Are there other numbers I am missing. :deal
Vison,
Use the “search” button at the top of your page to search for the 50% rule. This has been discussed extensively in other threads. Mike uses data from the national apartment association which states that over time their operating expenses generally fall between 45-50% of the gross monthly rent. That is how Mike and many others on this forum evaluate the potential of many properties.
Mike, please explain why this is not a good deal. Are there other numbers I am missing
Yes, most of the real world expenses were missed including (but not limited to) advertising, management, maintenance, legal fees, utilities (at least during vacancies), evictions, vacancies, entity maintenance, etc, etc, etc (I could go on and on). Failing to understand operating expenses and cash flow is the number one reason that the vast majority of newbies fail.
Good Luck,
Mike
Justin - just occurred to me that you did not say that “this is how Mike, myself, and many others…”. Does it mean you don’t use the 50% “rule”? What is your experience with expenses? I am just curious…
Thank you.
I did mean to include myself in that. I evaluated my first property based on mortgage payment, utilities, taxes, insurance… I knew I’d have other expenses such as possible future evictions, maintenance, repairs, advertising, and many more, but I didn’t know how to properly estimate some of those things. I didn’t find this site until about 6 months after we purchased. I saw the potential with our building because I knew about what our market rent was and also we had two vacancies when we purchased. For the past year, we’ve spent quite a bit on renovations. I knew that would be a big expense going into it. So if you look at my expenses for the past year, they would be WELL over 50%, but with 4 completely rehabbed units and 2 long term tenants in the two un-remodeled units that percentage will come down now.
Since finding this site, I have started evaluating properties based on the 50% rule. It’s true that most of them on the MLS won’t fit the criteria. Sellers want retail. Now I laugh when Realtors advertise investment properties as positive cash flow because the rent pays the mortgage.
Justin - thank you. I started searching the MLS last night. I can’t tell you if there are good deals out there. My family and I will start looking some of those properties today. At least we will gain knowledge of our target area.
Have a good 4th of July.