You need to get a handle on what the REAL operating expenses are. It wouldn’t surprise me if it were 40% of gross income. Then again, it might be a lot lower. Read Ray’s articles on doing due diligence to get an idea of what to look for.
At the stated rents and a 5% vacancy factor, the gross income of the portfolio is $58,311 per year.
At a sale price of $330,000…
With expenses at 30% of EGI, your cap rate is 12.36%.
With expenses at 40% of EGI, your cap rate would be 10.6%.
With expenses at 50% of EGI, your cap rate is only 8.8%.
So, what you need to do is get enough information to determine what you believe the likely expenses to be, and how certain you are of it. Then, figure out if under that scenario, the deal meets your needs or not.
Frankly, for this type of portfolio (scattered site, small 1-4 unit properties), I personally would be going in looking for better than a 12.36% cap rate. This is a management intensive portfolio. But that’s just me. Your requirements may vary.
my question = your suggestions? (long) - Posted by jason (kcmo)
Posted by jason (kcmo) on February 02, 2001 at 14:50:29:
Hello all,
I’m not a regular poster but am a regular reader of this resourceful site. I am looking for critical/viable suggestions and/or ideas to relieving a current landlord of a handful of properties. All properties are leased and tenants will be staying. My intent would be to hold as rentals for a minimum few years then possibly trade all or some toward a better income producing investment. here a the numbers that the seller has provided. I am fairly new to rei, but i have had a few rentals for a couple years and have a few deals under my belt. what is different here is that i would like to attempt a package deal. seller is willing to finance up to 20% to help out potential buyer.
my questions are how to structure a package deal and how to finance as a package if possible? also, with the numbers provided would the real dealmakers here at this site see a worthwhile deal?
here are the numbers:
sfh: 3/1.5/ 2stry, brick,new roof,water heater,new paint in/out; all appliances stay. rented at 600 per month. taxes 140 yr. tenant pays all utils. 46k.
duplex: 780 taxes, rented 900 per month total. 60k.
triplex: each 2/1.5. tenants pay all utils. 1225 monthly rents. 1560 taxes. 103k.
totals: 13 rentals. approx selling price 330k. total rents 5115.
shaving 40% for expenses (which seems high) leaves about 3k per month to service debt. not giving much if any positive cashflow. im 26, have good credit, bit a cash (rather not use) still have a JOB and looking to increase cashflow a bit. does anyone see potential here and if so, how to pursue? all comments welcome. fire away!