Posted by JohnBoy on January 13, 2001 at 03:13:13:
You need to account for all expenses. Taxes, insurance, any utilities, repairs and maintenance, vacancies, trash, snow removal, deferred maintenance, etc.
These are all one bedroom units which are usually harder to rent and have a higher turn over.
Estimating 40% for all expenses your monthly net operating income is $1,920.00 minus your mortgage payment of $1,882 leaves you with $38.00 per month cash flow. That’s $4.75 per unit, per month.
If you paid $260k you would be buying at an 8.86% cap rate. That’s low, especially for one bed units.
Figure closer to a 12% cap rate which would place a value of $192k using a 40% expense factor.
Putting 10% on $192k and financing at 9% over 30 years like you were figuring, your PI payment would be $1,383.95.
$1,920.00 net operating income after expenses, minus your mortgage payment of $1,383.95 = $536.05 per month in cash flow. That’s $67.01 per unit, per month.
This is a great site! I am new to the site as well as real estate investing. I came across what seems to my uneducated eyes like a great deal. Two quadplexes having a total of 8 one bedroom apartments. All apartments are currently rented for approx $400 each for a monthly cash flow of approx $3,200. I think I can purchase the two quads for $260,000. (asking price is $280,000). I think I’ll have to put down 10% and possibly have a 8-9% investor interest rate. Which comes out to around $1,882 P+I. That’ll have a monthly cash flow of approx $1,318. My question is, what all should I add to the mortgage example (from an investor standpoint) to paint the best picture of monthly cash flow? The neighborhood is great, and the quads are in relatively good condition. I currently live in a townhome which I purchased 6 months ago in a different state from the quads.
Re: Advice Please on scenario - Posted by Jim Locker
Posted by Jim Locker on January 13, 2001 at 10:03:32:
JohnBoy gave you a good answer.
The price for the building is high. Not impossibly high, but high. You might want to consider doing such a deal only if the property is in a very good area with very high occupancy rate, and if you have substantial reason to believe that there will be steady rent appreciation and capital appreciation going forward.
Most of the time one bedrooms are harder to rent than two bedrooms. Not always though; occasionally you will find an area (often close to a campus) where one bedrooms tend to stay full. You will have a lot of turnover, though.