2-flat -> Am I Missing Something?

4 Replies

Hi all!

I have a two-flat I'm looking at in a C-class neighborhood. My parents have an investment property near this one and I'm looking to get my own hands dirty in the investment world. Specifics are below:

Desired Purchase Price: 115,000 (Listed at $130,000 and has been on for 120+ days)

Both floors are 3bd/1bath

Both units are being rented at $1100 right now plus $50/month revenue via coin laundry. 2nd floor tenant has been there for 6yrs and 1st floor 3yrs. They pay rent on time and take very good care of the property. Rents are close to market rents...could be bumped up but these are good tenants.

Property is in good shape and is in no need of any immediate face lifts (no tuckpointing, minor roof work, windows 2008 double-pane vinyl, electrical updated and utilities separated). 

Am I missing something?

My apologies for the poor scan...

Those numbers look good, but if it's a true C area you might not always be able to count on having reliable tenants, and the next two groups might ruin that $500 cash flow. You'll want to see what the actual expenses are by asking the tenants if possible (for the most accurate analysis), but it looks like a pretty solid first look at this stage. 

@Evan Thomas The neighborhood is just west of a University Medical Center that's growing by the month so I'm confident the area will develop nicely. It's definitely a C area with the "+" coming very soon. The property abuts a new police station, which in my opinion is a definite plus. Tenants are very respectful for now and I see what you mean for the future. 

Regarding the cashflow - is it more realistic to use the 50% $587 monthly cashflow or the $767 cash flow once all my expenses are taken care of? This is a more general question for other calculations of course. 

The 50% is better for a first look, but once you've listed out all of the expected monthly expenses, capex, and mortgage/insurance as you have, you can use the $767. 

Have you thought whether you'll manage the units yourself or if you'll hire property management? that's another 10% in expenses. 

Because my parent's have another property right down the street (cashflows well) and I'm managing that one at the moment, I'll continue to manage it. I'll factor in the 8-10% for property management for future calculations thought. Thank you!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.