Good Deal?

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Good Deal?

Robert P.
New Bedford, MA · Member since 2015 · 361 posts · 114 votes

Two Family Property, 2BR/1BA each unit

Purchase Price: $175,000

Gross Rent: $1,800/month (might be able to get more, but let's play it safe)

Monthly Expenses:

Mortgage (includes taxes, insurance): $1,213

PM(10%): $180 (paid to myself)

Water/Sewage: $50

Vacancy (10%): $180

Repair/Maint (15%): $270

Calculations:

Cashflow: -$93/month or $87/month excluding PM since it's being paid to me

Cashflow without mortgage = $1,900 - all expenses except mortgage x 12 months = $13,440

Cap Rate: $13,440 (Net income using the CashFlow with out Mortgage)/$175,000 = 7.7%

In short, I would be getting around $537/month after collecting rent and paying my mortgage and water bill. Does this deal sound good? To add to this, the house is in a GREAT neighborhood (probably the best in the city) and will attract great tenants. It has a massive yard, driveway, and in overall great shape. I just need some help from the experts!!! This is going into month 9 looking for a home to buy!!!

THANKS!!

p.s. hope my math/calculations are all right!

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Matt Lefebvre
Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
10y

Hi @Robert P., although you can certainly spin it so the numbers look better, the deal is losing you money every month.  Sure it makes $538/mo if you don't account for any maintenance expenses, vacancy expenses, or management expenses, but it would be a huge mistake to look at the number without that.  

If you make sure everything is budgeted for, this property is losing money every month, and even if you don't budget for management, you're looking at less than $100/mo in cash flow.  

I really do not think this is a good deal...

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  • Matt Lefebvre
    Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
    10y

    Hi @Robert P., although you can certainly spin it so the numbers look better, the deal is losing you money every month.  Sure it makes $538/mo if you don't account for any maintenance expenses, vacancy expenses, or management expenses, but it would be a huge mistake to look at the number without that.  

    If you make sure everything is budgeted for, this property is losing money every month, and even if you don't budget for management, you're looking at less than $100/mo in cash flow.  

    I really do not think this is a good deal...

    2Reply
  • Robert P.
    OP
    New Bedford, MA · Member since 2015 · 361 posts · 114 votes
    10y

    Is it true that anything with a positive cash flow is worth it? Good multi-families are scarce right now in this city, and this one is in the best part. Something tells me that getting a little less cash flow is worth where this house is and my forecast of where the market will be in the future. Thoughts? Again, rents could be slightly higher as well, but I am staying conservative. 

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  • Andrew Davis
    Investor · Asheville, NC · Member since 2011 · 833 posts · 499 votes
    10y

    Hey @Robert P., I would concur with @Matt Lefebvre, this one looks really thin.

    However, it all depends on your investment criteria and your risk/labor appetite.  I personally have no desire to manage my properties or do repairs, so my cash flow numbers need to have some serious cushion in them.

    As you said, it's in a good area, and not only does that (sometimes) equate to higher appreciation, but also less hassle and maintenance issues.

    How's the roof?  Electrical?  HVAC?  While you can never know entirely what issues a property will have, you can make some educated guesses.  

    Hope that helps!

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  • Matt Lefebvre
    Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes
    10y

    @Robert P. positive cash flow isn't always worth it... first off it has to be a large enough amount of cash flow to be worth it to you. If the ROI is there, it might be worth it. I personally, would never invest in a property that would have negative cash flow and bank on its appreciation or that I'll have positive cash flow in the future.

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  • Robert P.
    OP
    New Bedford, MA · Member since 2015 · 361 posts · 114 votes
    10y
    Originally posted by @Andrew Davis:

    Hey @Robert P., I would concur with @Matt Lefebvre, this one looks really thin.

    However, it all depends on your investment criteria and your risk/labor appetite.  I personally have no desire to manage my properties or do repairs, so my cash flow numbers need to have some serious cushion in them.

    As you said, it's in a good area, and not only does that (sometimes) equate to higher appreciation, but also less hassle and maintenance issues.

    How's the roof?  Electrical?  HVAC?  While you can never know entirely what issues a property will have, you can make some educated guesses.  

    Hope that helps!

     Electrical and HVAC, also both hot water tanks were just both recently replaced. The roof is older and will need to be replaced shortly (next few years I would say) but I know a lot of contractors, so not so much of an issue. 

    This is my first home and I think it's small enough to be able to manage myself. I live close by so it will be easy for my to get over there, and don't think I would have many problem tenants applying to live there. It just slightly cash flows, but my only reason to still want this home is based on the location as well as the "manageability" of the place.

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  • Robert P.
    OP
    New Bedford, MA · Member since 2015 · 361 posts · 114 votes
    10y
    Originally posted by @Matt Lefebvre:

    @Robert P. positive cash flow isn't always worth it... first off it has to be a large enough amount of cash flow to be worth it to you. If the ROI is there, it might be worth it. I personally, would never invest in a property that would have negative cash flow and bank on its appreciation or that I'll have positive cash flow in the future.

     all valid points. I am not looking to invest in this to make lots of money off of it. It's more of a long term cushion and if I can break even for the time of ownership, and have a house where the mortgage is completely covered it seems to make sense for me. I also look at it as a good starter home to get into the industry with in a great neighborhood that will only appreciate. I grew up in this city, so I know each area like the back of my hand.

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