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
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!