Is this a good one? I guess I will ask too

Since everyone else is having the guru’s give thier blessing on thier ideas, I will too…

145K is listed price for quadplex…will try and get final price down to 130’s

Currently fully occupied.
Total monthly rent is $1800 (450 per unit)

Insurance is 1900 a year
Taxes are 2400 a year
Water is 460 a year

Tenants pay the rest of utilities

I am trying to do close to 100% financing.
135K @ 7% for 30 yrs puts me at just inside 900 a month

My estimated total monthly expenses are 158 (ins) + 40 (H2O) + 890 (P&I) + 200 (tax) = $1288

I was also told to estimate 1% of property cost for annual maintenance so take away another 115 a month for maintenance costs.

Still at 1400 I can break even even if one unit out of 4 isn’t even rented?

Finally, the bottom two units (I have seen one of them) have been renovated but the upper two need some work, though it is not urgent. I figure a little “lip stick on the pig” could get me up near 2K a month in rents in a year or so. The quadplex is also with in walking distance of a major college.

Am waiting to hear back from realtor about getting a copy of the leases and assuming the deposits from the renters.

Am I missing something here?

Also, thanks to all the experienced guys who come back here and answer questions. I have learned so much in the last two days just by scouring the forums and reading. Thanks much!


90,000 is what your offer should be. As you will find in many posts here. Take your gross rent and divide by .02 to come out with your total price to have into the property. Price and fix if needed. So in other words if the property needs 5k to be rentable then you offer should be 90k-5k=85k max. This is the correct ratio to be looking to get for rentals although a higher price may work if you are going to put a lot down but always try to keep the numbers safe.


Here is a better cash flow analysis:

Gross rents are $1,800 per month.

Real world operating expenses would be about $900 per month, leaving $900 to pay the mortgage and for any profit.

Your mortgage payment is $900 per month, leaving you with absolutely no cash flow.

Doesn’t sound like a good deal to me.


Could you elaborate on what your breakdown of real world operating expenses would be?

Also, my folks live in town so they would be the property managers (maybe a bad idea) so there is no expense there.

Operating expenses include advertising, management, maintenance, vacancies, taxes, insurance, utilities paid by the owner, legal fees, damage caused by the tenants, evictions, setout fees, fuel for your truck, lawsuits, capital expenses, etc, etc, etc.


Thanks, I really do appreciate it. I would rather learn through a solid scolding in a forum than with 145K of my own money…Thanks again!


Its not a bad idea; its a terrible idea.

Also, your assumption of 7% for 100% is way off. probably low 7s for 80% and 10+% on the top 20%.

Depending on the neighborhood, I might take this deal if I had other properties in the area.


You stated that the “real world” operating expenses for this property and the one I asked about “is this a good deal” would be 50% of the gross income. What if the gross income was $8,000. per month for the four-plex? Would the real world operating expenses still be 50%.
I’m just wanting to figure out how you came up with that number.


Throughout the entire United States, operating expenses run 45% to 50% of the gross rents. There are several organizations that publish these data, and I have found that to be true in my rental businesses as well.

So, yes that 50% number would be close for nearly all rentals, including a 4-unit.


I strongly disagree as I’ve operated a lot of different property types in several different market. If you expenses are at 50% of gross rent you need to get to work control cost; this is especially true for properties bring in higher rents.

My worst properties are at 40% and I have >30 units and 9 yr of LLing, but (and its a big but)if you don’t do thing rights or get chump property mangers then sure you can be at 50% (average). Its all about management skills.

If you are including all the expenses in your operating expenses figures (including capital expenses), then you are doing exceptionally well (which is GREAT). The 45% to 50% range is data from hundreds of thousands of rentals nationwide and is accurate. Danny posted that he was close to this and so have I.

A LOT of other people have stated that they were no where near the 45% to 50% range, but in every case they were not including all the expenses. Some were only including taxes and insurance. Some were including taxes, insurance, maintenance, and vacancies. Obviously, by ommitting some expenses, you can make the numbers say anything (although they are inaccurate).

My rentals are divided into different companies, with each company having multiple rentals. Each company has its own checking account and ALL financial transactions go through the checkbooks. Then, all transactions are entered into Quickbooks Pro and finally go to the accountant. So far, I have only gotten 2 companies done. I posted the first one about a week ago and I believe it was about 46%. The second company came in at 40.1%. I am working on the other companies and will post the expense percentages when I get them done. Certainly, not every property or every company will come in within the 45% to 50% range. I have some individual rentals that had no vacancies, no maintenance, no legal expenses, no utility expense, etc. I’m sure these properties did MUCH better than 45% to 50%. I can also think of one rental in particular that I had to evict 3 straight tenants. It was a fluke, but I’m sure that the operating expenses were well over 50% on that one.

Then you have someone who posted about a $10,000 expense from a bad tenant (eviction, vacancies, lost rent, damage, etc). The operating expenses could be well over 100% of the gross rents on that rental.

All I’m saying is that, statistically, operating expenses (including capital espense reserve) are in the range of 45% to 50% of the gross rents. When I calculate potential cash flow for a proposed purchase, I use the 50% number to be conservative.


but, let me understand this…

Based on my original calculation and if I assume that 50% of gross rent will be eaten up by expenses, then I am still (theoretically) going to operate in the black, its just that I won’t have much cash flow if my expenses are near 50%?

Its reassuring to think that if I do work this deal, I won’t entirely lose my @ss!

JS- you would be at 1790 leaving you $10 a month wiggle room. and that is at 100% @7%

Ok, so if I am going to buy a house and rent it for say $400, then I can pay $20K for it and had better put away $200 per month for expenses…right?

that is what history shows. You can risk it if you want.

the 50% figure is a rule of thumb; however on single family units some of your expenses (repairs) are not dependant on the rent being $400 vs $800. Thus on lower rental figures, you might be even higher if you have an older property requiring a lot of maintaince, high turnover or really crappy tenants.