No Cash Flow - Posted by Jimmy
Posted by Jimmy on September 29, 2005 at 07:59:59:
- The Price. in those parts of Texas where I do business, this property would fetch no more than 125K. in those parts of California with which I am familiar, this property might fetch 700K.
where are you? this is THE MOST IMPORTANT factor.
as for your numbers, here are some thoughts:
a. you forgot to use a vacancy/collection factor. I use 15% for my market. that is my real experience over 5 years. Here’s how I calculate it. I take my “gross rent” or " scheduled rent". This is the maximum rent I could collect in any given mont, assuming all of my units which were available were occupied and paid up. Obviously, properties under renovation are not in service that month. Then, I look at what I really collected. 85% is my average over the past 5 years, with more than 60 units. If you think you will 100% occupancy and 100% collection, you are dreaming. and guess what, that factor just cut your cash flow down to nothing.
b. where did you get your insurance and tax numbers. Please don’t say you got them from the seller or his broker. Talk to your insurance guy and get a quote. $1300 looks pretty low for a 200K property, but I could be wrong. and the taxes the seller was paying may go up after your sale, because you just bumped the assessed value.
c. Will you manage yourself? If not, add in a management fee.
d. Have you inspected the place? What is the general condition? If you lost your tenant tomorrow, how much work would you need to do to get in into rentable condition?