Posted by Lyal on September 17, 2004 at 10:08:40:
BIG,
No the expenses do not include the debt service.
40% is an average for an older building. That includes religiously putting away a portion of the income to take care of things like a new roof, new boiler or furnace, exterior painting or siding etc.
Lyal
Does positive cash flow make a good deal?? - Posted by B.I.G.
Posted by B.I.G. on September 16, 2004 at 20:21:02:
Looking at a deal to buy some apartment units with 0 money down while walking into around 10% equity. Units are currently 100% occupied, in ok shape (could use some help)in a lower income area. Estimated cashflow per building is $700/month. Questions are does immediate cash flow make a good deal? What other factors should be considered?
Re: Does positive cash flow make a good deal?? - Posted by Trevor (OR)
Posted by Trevor (OR) on September 17, 2004 at 14:40:19:
I agree,
Expenses at 25% is very low. You might get a hold of the owners taxes to see what he put his expenses at on them. Usually the owner will show all the expenses he can think of on the taxes.
Remember that you need to look into the future for your expenses. Not all expenses occur every month. Maybe a few months down the road the property will need new appliances, carpet, repairs, etc. that you don’t forsee right now.
Expenses include insurance, taxes, utilities, repairs, cleaning, advertising, management, maintenance (lawn care, snow removal, etc.) replacements (appliances, doors, lights, etc.) supplies, and the list can go on.
My point here is that you need to think of everything that it will take to run the property and figure it in. I think you will find that your expenses will be higher than you anticipate.
Re: Does positive cash flow make a good deal?? - Posted by Lyal
Posted by Lyal on September 17, 2004 at 07:25:05:
BIG,
Does that 10% equity include a deduction for the deferred maintenance that could take these buildings from “could use some help” to “nice property”?
Is the 700 a month after you deduct the 40% of rental income that will be sucked up by expenses (maintanance, management, utilities, vacancy allowance…)?
If the answer to either of these is no, this is no deal. If the answer is yes to both, it’s still slim at best. I’d keep looking.
All the best, Lyal
Re: Does positive cash flow make a good deal?? - Posted by BIG
Posted by BIG on September 17, 2004 at 07:57:33:
The equity does not include any maintenance needed. The 700 is after expenses which I estimate at 25% of rental income. I’m curious where your 40% comes from. Do you consider that a good standard? I appreciate the response.
Re: Does positive cash flow make a good deal?? - Posted by John
Posted by John on September 17, 2004 at 08:20:15:
As to the 40% figure…
I have pretty much settled on that number when looking at SFR deals.
If you put in property management and everything else 40% will be a
bit high though not much. Most of my numbers show between 32% and
40%. It varies a lot by the property taxes and if all utilities are covered
by the tenant.
For a multi the common areas add extra expenses relative to the
property.
If a deal works at 25% and then does not work at 40% I would watch
out. Either get a very tight control on the expenses or pass on the deal.
John
Re: Does positive cash flow make a good deal?? - Posted by BIG
Posted by BIG on September 17, 2004 at 08:48:26:
What am I missing here? Is that 40% to include all expenses including the loan payment? I’m at around 37% for everything.
Re: Does positive cash flow make a good deal?? - Posted by BIG
Posted by BIG on September 17, 2004 at 08:56:05:
37% is not right. Cashflow would be about 27% of rental income.