This property will stand me approx 2216.00 each month
This property will stand me approx 26,592.00 each year
6Units
average unit gets 583.33
monthly rent income 3500.00
yearly rent roll is 42,000
42,000 x 15% vacancy = 6300.00
potential yearly income is 35,700.00
35,700.00 - 26,592.00 = potential profit is 9108.00
cash on cash is 16% ( 9108.00 / 5700.00 = 0.16 )
cap rate 3.2 % ( 9108.00 / 285,000 = 3.2 % )
I’m assuming that “stand me” translates into gross rents. If that is true, then the gross rents are $2,216. Throughout the entire United States, operating expenses run 45% to 50% of the gross rents. Therefore, operating expenses would be about $1,100 and you would have $1,116 left to pay the mortgage and for any profit. In this case, since the mortgage is $1,516, you would have a negative cash flow of $400 per month! That does NOT seem like a good deal to me, especially since you would be putting down $57,000. OUCH! That hurts me just to think about it!
Do whatever it takes to understand the math associated with rentals before you buy anything!
I’m assuming that “stand me” translates into gross rents. If that is true, then the gross rents are $2,216. Throughout the entire United States, operating expenses run 45% to 50% of the gross rents. Therefore, operating expenses would be about $1,100 and you would have $1,116 left to pay the mortgage and for any profit. In this case, since the mortgage is $1,516, you would have a negative cash flow of $400 per month! That does NOT seem like a good deal to me, especially since you would be putting down $57,000. OUCH! That hurts me just to think about it!
Do whatever it takes to understand the math associated with rentals before you buy anything!
Mike
If that is true, then the gross rents are $2,216. Throughout the entire United States, operating expenses run 45% to 50% of the gross rents. Therefore, operating expenses would be about $1,100 and you would have $1,116 left to pay the mortgage and for any profit. In this case, since the mortgage is $1,516, you would have a negative cash flow of $400 per month!
Mike, you forgot to add the rental income ?
But then again, at 42,000 each year, divide by 12 months thats 3500.00 divide by 2 = 1750.00 monthly expenses, so Steve this still wouldn’t make any sense ?
6Units
average unit gets 583.33
monthly rent income 3500.00
yearly rent roll is 42,000
42,000 x 15% vacancy = 6300.00
potential yearly income is 35,700.00
So, with those numbers, $1,750 would go toward operating expenses and $1,750 toward mortgage and any cash flow (profit). With the mortgage payment of $1,516, you would have a monthly positive cash flow of $234. With 6 units, that’s only $39 per unit. Still OUCH!
I wouldn’t do this deal even if the purchase price were $228,000. Considering that you would be putting $57,000 down, it doesn’t seem like a deal to me.
Also, you are calculating cap rate incorrectly. Cap rate is NOI divided by value (or purchase price), not profit divided by value.
I calculate operating expenses at 50% of the gross rents. The gurus would have you believe that operating expenses are maintenance, vacancy, management, taxes, and insurance. That is absolute NONSENSE! In truth, you also have evictions, court costs, legal fees, entity maintenance, lawsuits, fuel for your vehicle, damage done by tenants, exterminations, capital expenses, and much, much more. It is absolutely impossible to list the expenses that will occur for a given property in a given year. Will there be a lawsuit on a given property next year? Will a tenant do a bunch of damage (how much)? How many tenants will need to be evicted? Will an unexpected capital expense occur? Who knows.
However, even though you don’t know which expense will occur for any given property in any given year, you still must account for these expenses or you will soon be out of business.