Hello Everyone,
I have the opportunity to purchase a 4-plex, asking price $479k. It has 1-1bedroom, 1-2bedroom, 1-3bedroom, 1-4bedroom. Current rents are $470, $650, $750, $975 but with the current rates in the area I am assuming I can raise them slightly when the lease comes up for renewal, or raise them more then slightly once the current tenants move out.
Insurance, Water, and Taxes come out to roughly $5,000 per year. Doing the figures I think that to “break even” I shouldn’t go over $400k
Can anyone tell me if my math is right, or off? Also like most newbies? Is this a good deal or a waste of resources?
Thank you.
David
David,
I think that this is a TERRIBLE “deal”. The purpose of being in business is to make money, not break even. As a rule of thumb, I insist that every one of my rentals has a positive cash flow that is at least 1/3 of the mortgage payment (1/2 is better). This allows you to have a sustainable business that can absorb multiple vacancies, etc. Also, be sure that you are considering all the expenses when you calculate cash flow, i.e. maintenance allowance, vacancy allowance, utilities paid by the owner, management fees, taxes, insurance, etc.
My suggestion would be to start with several single family houses and only then move up to apartments. Apartments are more work and generally have a lower class of tenants. Learn to walk before you run!
Good Luck,
Mike