Advice on a Deal

I am looking at investing in a property and here are details:

Six unit apartment building
Rent: $500/mo per unit
One vacancy

List Price: 329,900

Assumptions: Rent Year 1: 30,000 (I just figure one month of rent for expenses), Rent increases of 3 percent per year and holding period of 10 years.

With a 12 percent expected return, I am getting a NPV of $315,127. I figure I could get them down to $300k-310k. I think a return of over 12 percent is pretty acceptable. I understand the assumption for expenses and will be working on getting a pro forma but I just wanted to make sure I was on the right path with such a property.

I plan on putting a 100k down, so thats a 30 percent cash on cash return on my equity. Am I overlooking anything here?

I would figure in a vacancy rate (a percentage of vacancy’s per year)
Also i would try to purchase the property for as little of a down payment as possable, let the property pay for itself …
If the property can cash flow with a 15-20 % down payment, you could use the rest of your funds for other investments …

well right now I am working on selling a condo I have that will free up the 100k in equity. I just don’t want to get so overleveraged and get in trouble if for some reason half my renters leave and I can’t replace them. I think leverage is a great tool for investment but can get you in trouble very fast if you don’t know how to manage it.

So true!

First post, hello all, nice forum you got here.

I’d leverage it as much as you are comfortable with. If it was me I would leverage it at exactly the amount where it would cash flow zero if two apartments are vacant. That’s a 66% occupancy which is a pretty safe cushion. I am fairly conservative though and you may do more or less depending on historical occupancy.