9 unit apartment complex in small town 10k population in kansas state. avg 8 occupancy since 6 years… $36000gross yearly income then (minus $2500 insurance, $2500, $2700 tax, utility $1000, $3500 managment fees)
net incomes is $23000. furnise are 25 year old but very well mainted working fine… no rehab needed… currently 8 unit rented… all are 2 bed 1 bath… ! whats the good price to buy and flip property by summer…!
http://www.therrestates.com/apt.JPG
YOUR COMMENT WOULD APPRECIATES…
rrestates
Taxes, insurance, utilities, and management are not the only expenses - NOT EVEN CLOSE. Operating expenses also include advertising, maintenance, entity maintenance, vacancy allowance, legal fees, excessive damage done by the tenants, evictions, court costs, lawsuits, etc, etc, etc (I could go on and on). In addition, you need a captial expense allowance. Throughout the United States, operating expenses run 45% to 50% of gross rents.
Personally, I would not pay more than $150,000 for the building. If you want to sell it to someone like me and still make money, you would have to buy it cheaper than that.
Mike
What’s the cap rate in the area?
Figuring on the $36k gross becoming $18k NOI…
and a Cap Rate of .10
Then you have a Value of approximately $180,000
Play with the Cap Rate and Actual NOI, and you’ll probably find yourself in the $150K to $200k range.
I have to admit though… the building looks nice. Those rents seem a bit low for 9 units in a nice place?
property manager, I see how your coming up with the purchase price by taking the gross rent and dividing by .02 but that seems like a pie in the sky deal to me. Are you actually finding buys out there like that? That’s a high high amount of equity you’d be realizing. I put your formula to the two rental properties I have and in both cases, the prices I would need to purchase rentals comparable to mine would be half of the fmv. prop 1 fmv- $125,000- $1250(rent)/.02=$62,500 purchase price; prop 2 fmv - $1,100(rent)/.02=$55,000 purchase price. If there are deals like that, surely they’re not on the mls?
forgot to add that my property 2 fmv is also $125k
slickb,
Yes, that is exactly what I do for my properties. As an example, one of the buildings I just got was a duplex. I paid $48,000 and the gross rents are $1,100. That’s 2.3% of the purchase price each month in gross rent. If you’re following my blog, that’s the one I’m rehabbing (paint and carpet) now.
Yes, it is a high level of equity. This duplex is conservatively worth $85,000, so I got it for about 56% of FMV.
You are also correct that you won’t find many of these deals on the MLS. Real estate investing is not a stay-at-home business. Real estate investing is all about meeting people and getting inside deals. This property was owned by a VERY disgruntled landlord, who had been emotionally beat up by bad tenants (because she didn’t screen them).
You can find other deals with people who have lost their jobs, divorces, people with 2 houses (2 mortgages), from other investors at your REIA, estate sales, foreclosure sales, REOs - just to name a few. Finding great deals IS NOT EASY IN ANY MARKET.
However, if you’re buying rentals, cash flow is king. The vast majority of newbies fail in a short period of time due to a lack of cash flow. The reality of the numbers do not change because it is difficult to find deals in your market. Pay too much and you’ll soon be out of business. It’s that simple.
Mike
the simple answer is NO, multi-family are not a good flip candidate. Why? Beucase you are marketing to a very limit pool of potential buyers; many who are experience landlords who are not interested in paying retail or “market rates”. In theory there is a price that might make it worth it to try, but I have no idea what would be without know area tpyical Cap Rate, GRM, and general market climate.
If you want to do a flip, find a good basic starter home that can had for 50% FMV and maybe needs carpets, paint, yardclean-up and/or some cosemtic work