Is it worth it???

…to close a deal on a 3 family (not owner occupied)that will give me a cash flow of $225/month?? It seems a logical thing to do! However, as a new investor, I’m nervous about other possible immediate costs that could easily turn this deal sour? I’ve considered loan costs, pmi, taxes, homeowners insurance and water/sewer taxes. The place is currently rented with leases through middle/end of 2006. The place is in real good condition. Mostly new roof and newer mechanicals. Lead paint has been abated.
Thank You.

I am pretty green at this still, but it seems to me that any deal that will give you cash flow after all expenses are calculated is indeed a good deal. Some more experienced investors may have a different opinion, and maybe I can learn something also after they respond to this… :-\

Consider vacancies, those who stop paying rent for 1 reason or another, eviction costs, fix-up costs after the deadbeats are out, etc.

None of this will kill ya, but it hurts just the same.


Thanks Kevin,
The property I am currently pursuing has 3 section 8 tenants that have been there 3-7 years with leases that expire next year. So it seems like a real win I’m just trying to get the current owner down a bit on the price to create a positive cash flow. I think the property will continue to appreciate @ 4-6%. One thing I have not considered in my deal analysis is the tax advantage. Can you comment on that at all - or lead me in the right direction for research?
Thanks again in advance,

stay on this deal as it looks pretty good. sounds like it has plenty of strong points. One thing is you don’t mention what you down payment is so it tough to tell if 225 is a good cash flow. With that said, positive is great thing so then the challenge is how to improvwe it.

As for taxes, it is “roughly” the following. In addition to cash, you can tax about 3% depreciation per year against income. This will make you show a loss (on paper). If you AGI ( adjust gross income) is less than 100k per year you can take all of this loss aginst your income. If you are more than this number is is pro-rated (downward) to zero at an AGI of 150K. So if you a modest income, this could be worth an additional few thousand dollars in “profit” by reducing your atxes.

This is some general advice unless you have something “funky” about your tax situation.

Again, thanks for the great info. The down payment is going to be 10% by the seller @ 6% for 3 years (20 year schedule) and I haven’t decided if I’m going to put anything down yet? With the tax advice you gave and the research I’ve done on tax advantage it’s looks like a real winner. Is it safe to say that the writeoff on the tax advantage (additional profit) will only last 2-3 years or so (assuming appreciation continues to go up and depreciation is 5%±)?
Have a great day,

First of all the tax advantage will continue for a maximum of 27 1/2 years (residential), if I am understanding your question. The losses if your income is over $150,000 per year are not applied to your overall taxes, but this is after depreciation and expenses are offset by any rental income. As the other reply stated; if you make under $ 100,000 this is not an issue at all. Of course if you are over 100k to 150k a year god bless you.

Second, have you assesed future repairs, 10% (sellers lying), and how much have you set aside for any unforseen issues?
You did not say how much the property is costing you so I do not know your area, but 4 or 5 thousand is very reasonable if not low.
A cash flow of approximately $ 200 on a 3 family seems very low
to me.
Maybe this is decent in your area ?

Our 4 family purchased last year has + cash of $1000/mth after 10% down.
And just for the record, for the future,any property that needs more than 10 % is questionable.
My brother in-law (has 27 units) thinks I’m nuts for not having even better cash flow.
I hope this helps,