New to the game; opinions on this prop?

General Real Estate Investing
1

I’m new to REI and am working to get a firm understanding of property analysis prior to going after anything. The following is a property in my area that just went on the market. I am sure I’m being conservative with my numbers here and this is part of the reason I’m posting. I’d like to get a feel for what is reasonable and what is over-the-top.

My problem with this is that the price they are asking seems outrageous. Even if I bought it for half of what they’re asking, I can hardly see it cashflowing. I’m just wondering if I’m not looking at something correctly. Thanks for any opinions.

4 unit apt. bldg. asking $235,000 (let’s assume I buy this at full price with 20% down; this is not close to what I’d do, but just for this example)
Gross Inc = 19,620 (3 @ 425, 1 @ 360)
Vacancy = 1,962 (It is high in my area but is 10% too much? Haven’t checked with anyone to get specific numbers…)
Other Inc = ?? (Coin operated laundry onsite; no idea what to estimate for 4 units here)

Inc before Expenses = 17,658

Expenses:
Insurance = 1,645
Water/Sewer = 1,175
Maintenance/Repairs = 1,962
Management = 1,598
Legal = 500
Electrical (common areas) = 480 ($40/month)
Trash = 900 ($75/month)
Snow = 500
Prop Taxes = 1,500

Total Operating Expenses: 10,260

NOI: $7,398 (Times 10 valuation makes this worth $73,980 ?!?!)

Mortgage: 188,000 @ 6% for 30 years = $13,524/yr

Cash Flow = -6,126

You’ve got to be kidding me right?!

So, what if I manage to cut the price to $180,000, still with a 20% down payment?

Oper. Expenses (Insurance, etc.) would go down a bit: 9,600
Mortgage: 144,000 @ 6% for 30 = $8,292/yr

Cash Flow = -234

Better, but still unreasonable. Please offer any opinions or comments on the calcs. Hopefully this will help me do a better analysis in the future. Thanks!

2

rhetoric,

As long as your data is correct (owner pays water/sewer, trash, etc.), you’re ‘spot on’ here with your calculations. In my opinion, a $235K buiding with only $1,635 a month income is overpriced. I like to see at least 1% there, preferably 1.25%+.

Your taxes don’t seem too bad, your insurance is probably about right. You could probably do a littel better on the 8% management but maybe not (regional). 10% vacancy on a multi-plex is probably a little high but safe.

My two cents…

Keith

3

Keith once again is correct!

One thing to keep in mind is the first year I always Double my repairs this way when I do not spend that much I am happy ;D When I do I allowed for it ::slight_smile: other then that I will keep my mouth shut :-X and let you run with this! That is the first time I ever used the smilies this many times and it worked

Buy the way this is my ex-wife :devil:

4

She has cute red eyes, Robb…has she always looked like that???

Keith

5

Thanks for the feedback! I also appreciate the 1-1.25%+ tip. That will help me with quick estimates.