BiggerPockets

110k total price
27.5/unit
550 rent
fits 2% rule,
Need alittle more information to figure out cap rate and such, are the units all metered separately,.? electric/gas/water

For the cap rate you have to figure the Net Operating Income of the property.

subtract the vacancy amount and operating expenses from the property's gross income. operating expenses include maintance, taxes, insurance, management, advertising ect.

Could get atleast a little closer with the est taxes and insurance for the property.

Derek, here's how I would do it. I am going to assume that the cost works out to $120,000 after rehab and other costs. I will also assume 75% financing (of the total cost) at 7% amortized over 30 years. The numbers are as follows:

Cost = 120,000
Debt = 90,000
Down = 30,000

Gross Scheduled Income = 26,400
Expense (50% rule) = 13,200
NOI = 13,200

Debt Service = $7,200 (rounding it a bit)
New Cash Flow = $6,000

On your 30,000 investment, that's a cash-on-cash return of 20%, which is very decent.

In addition, you also have principal reduction in the first year of about $880, which gives you a first year total return of more than 22%, which is also very good.

Assuming this property is in a location where long term rents can be expected to increase over time, your IRR of this investment will be higher than the first year return.

Please note that all the replies, including mine, are based on some assumptions. You need to make sure the assumptions will hold true for your investment in order to rely on any of these calculations.

P.S. I do not pay too much attention to the CAP rate except as a filtering tool. Once you have a specific property, crunch the numbers for that property and see how it works out.

Derek, I think you would want to sell to an investor who is not a BP member. We have all been too well educated on the 50% rule, the 2% rule, the opportunities in the Mid-West and Texas, etc. so we will be looking for bargains.

If you find a less sophisticated investor who underestimates the expense of having a property, you could get a pretty good price for it. For example some local people with some money might think that a rent yield of 15% is a good deal. They might be willing to pay $176,000 for this assuming rents of $550 per unit.

But I do not know about your area. You can talk to people in your area to get a sense for the rent yields people are expecting there.

That was what was puzzling me. The fully rented units in the comparable area seem to start at 165k for a pretty run down but occupied plex. Mine is an REO thayt has been boarded up by the City. The City wants a rehab permit pulled, but doesn't have anything on the property that freaks me out. That seemed like a not so great return at 165k or more.

The identical unit next door just hit the market. They want 150k for it, but if I can set the comp quickly at 100k I hope to get both. Then I could control the corner and be well on my way to being the next slum lord of Hemet! haha
An 8-plex for 200k or under! The funny thing is, in this crazy market, in a year I bet I still feel I over paid.