Jay,
I use a simple calculation to determine if multifamily is worth my time. take the ask price over the qross rent. So 160/22=7. Now to look at this another way consider a duplex for sale for 50k that generates 12k per year in rent. 50/12=4.1 It is likely that this deal will cashflow well and worth further consideration. Another way to look at it, I want more than 20% of the ask to be generated in gross rent per year. For me, i want to make money on the buy, make money on the cashflow, and make money on the sell.
Why isn’t this 4-family moving? - Posted by Brian,WI
Posted by Brian,WI on October 13, 2003 at 21:39:00:
Am I missing something on this one?..
There is a 4-unit property that’s been sitting since the end of July (also see my post below re: 4-family on small lot). Still on the market for $169,9000, but the seller will take $160,000.
Gross rent is $22,600.
6% vacancy 1,356
Eff. Gross $21,244
Expenses are $8,086 (separate utilites)
NOI $13,158 (pretty close to ending up with 40% operating expenses)
Using my “worst case”-$160,000 with 20% down ($32,000) at 6.5% for 30 years= 809.05 or $9709(rounded) yearly, leaving a cash flow of $3450.
This in turn would be about a 11% Return on Investment(ROI). Not the greatest and not bad, but I keep finding returns of only about 5% on similar properties in good areas.
This is in a good community/area and the property is in good shape, I just don’t know why it’s not selling (other then the seller “keeping” or sub-dividing the 60’ wide lot into 2 30’ lots and keeping one himself to build a house on it).
Hi There
Have you looked at the tenants?, the area around it?is there stores supermarkets? is the neighborhood growing or surrounded with empty lots? is there new construction going on? is there a strict laws against the landlords when trying evict?
Good luck
Jay
I don’t have any idea why it is not selling, but I know I wouldn’t buy it. If it isn’t selling now, then it will be hard to sell later, so really you are buying cashflow. The cash flow seems OK, but the payoff is way too long for me. If it had the same cash flow with a 10-15 year payoff it would be a lot closer to my criteria.