4-Plex Cash Flow..Truth or Fiction? - Posted by Hal

Posted by Hank FL on October 27, 2003 at 19:36:19:

I must’a thought you might have Kreskin-like abilities.

Now I remember that this isn’t the Art Bell newsgroup.

My e-mail is OK now, so I’ll send you what you required so I can get what I want.

4-Plex Cash Flow…Truth or Fiction? - Posted by Hal

Posted by Hal on October 26, 2003 at 12:05:30:

Greetings All,

I?ve been lurking now for months. Using what I have learned here I finally decided to go look at a property and run an actual case study on a 4-plex that is for sale. Here are the numbers that I have come up with to see if any of you smarta?s can spot anything wrong with my conclusion. The numbers do not include costs to finance, and some up front rehab that needs to be done.

$74,500 Asking price. 4-plex. Each unit is 2br renting for $300 a month.

All Figures based on yearly costs.

$ 5,640 Mortgage 6.5%
$ 1,000 Taxes
$ 700 Insurance
$ 720 Maintenance (Water heater, appliances, plumber)
$ 432 Miscellaneous (lawn care, legal fees, advert.)
$ 900 Utilities (sewer and water)
$ 720 Reserve (Capital improvements, new roof, HVAC)
$ 1,440 Vacancy(10%)
$ 1,200 Improvements (between rentals…paint, carpet etc.)
$12,752 Total Expenses

$14,440 Yearly Gross Potential Rent

$1,688 Positive cash flow for the year, or my profit. Which comes out to $35 per unit per month.

Am I missing something or have I over compensated? When a realtor tells you that the mortage is under $500 and the monthly potential rent is $1200 = great cash flow. Maybe I should be talking to another realtor.

Thanks in advance for your comments?

Truth… - Posted by William Bronchick

Posted by William Bronchick on October 27, 2003 at 19:35:15:

Use my “HALF” rule…

My experience is that with low-end multi-units about half or so of the gross income will eat up everything but debt service. So, in your example, $14,400 per year in rents will result in $7,200 per year BEFORE paying debt. Your debt service is $5400, leaving $1800 net.

So, I’d say you’re right on the money. The HALF rule generally is a good rule of thumb. If someone is asking a certain price, I work it backwards using the half rule as a model (it’s basic algebra if you “solve for X”). If the price I come up with is WAY LOWER than the seller’s asking price, I don’t waste any time trying to negotiate.

6.5% investor loan ? - Posted by Hank FL

Posted by Hank FL on October 26, 2003 at 19:23:58:

Gee, I know the V.A. had some sweet investor financing going for years, on their own foreclosur…I mean houses, but that’s history now.

What kind of loan program is this and from who ? How much down ?

Are you getting your financing info from a mortgage broker or this realtor you mentioned ?

Hmmmm… do you have to live there to get the 6.5% financing ?

Re: 4-Plex Cash Flow…Truth or Fiction? - Posted by tony b columbus ohio

Posted by tony b columbus ohio on October 26, 2003 at 13:14:45:

So, given the facts. How much can you offer for this quad and make 10% return? If there is no room to raise rents then perhaps you have discovered why this property is still available.

Re: 4-Plex Cash Flow…Truth or Fiction? - Posted by Brent_IL

Posted by Brent_IL on October 26, 2003 at 13:03:58:

If you’ve overcompensated, it isn’t by much.

Improvements and maintenance costs are going to cost about the same with a $300 a month apartment as they are with a $1,500 a month apartment. That’s what’s pushing the numbers into the higher range.

Is it possible that the rental rates are below market? Is there any room to raise the rents? When you buy close to market value, the cash flow for the first year, or so, will go toward improvements and upgrades because the primary objective with multi-units is to increase the net rent roll.

Good real estate agents, from an investor?s point of view, are uncommon. Your REALTOR® might not be terrible. Most real estate agents don?t own investment property, so they don?t know how to allocate expenses accurately. The best that many can do is to work with a local cap rate. The REALTORS® job is to sell you the building. What happens after settlement is of little concern to the agent.

we get 6.0% - Posted by David Krulac

Posted by David Krulac on October 27, 2003 at 06:46:52:

1 point 20% down evry day of the week, its no special deal. Local bank like 15 offices, don’t know if they lend in FL. email me and I’ll give you the contact.

Re: 4-Plex Cash Flow…Truth or Fiction? - Posted by Jerry

Posted by Jerry on October 26, 2003 at 16:40:24:

Divide the net operating income by 10% will give you your purchase price, if all figures are correct.

Hey, HANK-FL - Posted by David Krulac

Posted by David Krulac on October 27, 2003 at 16:34:03:

the link is busted to your message so I can’t see your response!