Scheduled Gross Income: $23,900
Maintenance: $2,400
Taxes: $1000
Insurance: $1000
Other Expenses: $1,900
Total Expenses: $6,300
Net Operating Income: $17,600
(4) 2bd 1 bth, In a college community, asking $180,000, cap rate 9.8%, I would be buying this not to flip, just for income and have a place for my daughter to use when she goes to college.
I am new at this and I want to know does the price look good or what would offer? Thanks
Maintanence in a college town seems low…unless these are non-student renters.
Are you going to charge your daughter rent? Is she going next year or 10 years from now.
Offer the full price if he’ll carry the note at 6%.
Where is your mortgage payment? If you're going to pay cash, then your annual rate of return comes in around 10%. This is assuming your numbers are right. I think your numbers are optimistic. Is your scheduled gross income assuming 100% occupancy? If you type in "cash flow" in the search feature of this website, you will find extensive discussion with regard to income and expenses. Usually a financial statement in real estate includes income, which is typically only from rent, but you could boost income in a 4 plex with coin op washers and dryers, a soda machine, whatever. Also there would be some tax advantages depending upon your income and your degree of involvement with the rental business. In the expense column, you will have mortgage broken down by principal and interest, taxes, insurance, vacancies, maintenance, repairs. If you are going to pay a property manager, then you will have that expense. There are many hidden expenses in property managment, evictions, lawsuits, deferred maintenance and if you look back through this website, you will find that expenses amount to about 50% of the rental income +PITI (principal interest taxes and insurance.
You would probably take a negative cash flow on this property in the first few years, but this could be ultimately profitable through principal balance paydown. To have the kind of cash flow investors like to see, you would have to put about $80,000 down.
Investors mostly look for retail value discounts when they buy, and you are getting this place for another reason. Unless the purchase price of $180,000 is a substantial discount (30-50%) from market value, this is not a great investment. When you say "college community" I don't know where that is, so it's hard to say whether appreciation is probable.
You should ask yourself how much you want to get involved in something like this, then talk it over with a real estate finance person (accountant or investor).
Best wishes to yourself and your daughter.
Scheduled Gross Income: $23,900 Maintenance: $2,400 Taxes: $1000 Insurance: $1000 Other Expenses: $1,900 Total Expenses: $6,300 Net Operating Income: $17,600
mikes2995,
The numbers you listed are garbage. Throughout the United States, operating expenses run 45% to 50% of gross rents. You ommitted the MAJORITY of the expenses!
Here is the way I see this deal:
Gross Rents: $1,992 per month
Operating Expenses: $996
NOI: $996
Mortgage: $1,320
Monthly LOSS: $324 OUCH!
This is a LOSER. I would strongly suggest doing some more studying to learn the business before you buy ANYTHING. The vast majority of new landlords fail in a short period of time because they don’t understand the real world expenses; real world cash flow issues; and the proper way to deal with tenants.
Keep looking, you can do a LOT better!
Good Luck,
Mike
How did you come up with $996 operating expenses?
50% of gross rent number.
College Community. To me that says “Utilities included in rent”. If the utilities are included in the rent and your numbers are correct, then you need to RUN!!!
You have some good replies here already. It doesn’t sound bad to me, but I don’t know your area. As a long term hold, is it a property you want to own and rent? Renting to college students sounds like a headache. As far as the numbers, they sound decent, but remember that sellers always understate expenses, do sig into more details. Share them here if you like and we can give you better feedback.
FWIW I never heard of expenses at 50% of rent. I have seen property management in resort areas run 50% for companies bringing world class marketing to bring in renters.