I am looking into purchasing multifamily houses in the NE PA area and rent to section 8 after some fixing. I have worked in the construction industry for many years and can handle the fixing, subcontracting and estimating on this end but I am looking for some formulas that you may use to determine weather or not to purchase the home. I have heard of rent x 30 - expenses… any others out there that have proven reliable for you.
Thanks
Regards
James
James,
Throughout the United States, operating expenses for residential rentals run 45% to 50% of the gross rents (I use 50%). That does not include the debt (or cost of money if you’re paying cash). So, here’s what I do. I take the monthly gross rents and divide by 2. That gives you the NOI. Then, I subtract $100 per unit per month (my desired cash flow) from that number, which leaves me with the maximum monthly debt payment I can make. I put this number in to a financial calculator along with the term and interest rate to get the maximum purchase price. Of course, if there is a rehab needed at the time of purchase, I adjust (lower) the maximum purchase price accordingly.
Mike