What advice would you give?

Question

I showed my clients a 4 plex in decent shape. Needs some cosmetic updating. Running the numbers, the property breaks even, which I contend is a no go for purchasing. The listing agent comes back with "You can raise the rent". Yes, you could probably raise the rent $25-$50 a month per unit, but not much more than that.

My question - do you run your calculations on what is or what could be?

Rob McGahen · Answer

Who buys investment property to just break even? Someone who will eventually lose the property back to the bank, or best case, sell at a loss, that's who...

Charlie Fitzgerald · Answer

Considering "what could be" should also include a vacancy factor if you are going to speculate...

My fundamentals are always based on the present and the numbers as if day of sale.  I've had tenants give notice when rents were raised $50.  A month's vacancy and costs to prepare for a new tenant are somewhat more costly than the potential for a $600 a year bump in Operating Income.

Bottom line, if it does not pencil out at purchase, I'm my world there won't be a purchase, at least not by me.

Brendon Woirhaye · Answer

@JOAN DICKIE I will do my calculations based on the current situation and the optimistic situation.  This gives me a band between the status quo and "what could be".  Properties which only break even and rely on increases to turn a profit don't meet my criteria, but they may meet the criteria of others - everyone approaches RE investing with a different perspective.