First time multi-family investor here. Using the Rental Property Calculator But having a hard time reconciling the number since I keep coming up with negative cash flow regardless of how I update the numbers. Thoughts on this Dallas duplex in great area?

$659k list price

$4100 in current rents..close to average. 

I'd put 25% down with 5% loan.

Thanks!

James

@James Wesley I would need a lot more information regarding the property such as location, condition, etc. Are you working with a realtor? If so - have them run some comps to see if the current rent is below, above or right on par with market rents. Also - it's going to be very difficult to cash flow on a duplex at a price of 660k. I've helped a lot of investors get into duplexes around DFW but the most I've had a client spend is around 450k - obviously it all depends on the rent but given the sales price and the rent - it's a big no for me, but again, that's just me... but I'm sure others will chime in and say the same thing.

Thanks for the quick reply. Yeah I am working with a Realtor and this duplex is in Oak Lawn (Perry Heights). Super nice and big property and units. Downstairs is a 3-2 and up is a 3-1. The bath up could be redone but kitchen is solid as the rest of the unit. Also has a double car garage as well which could be an upsell. Thanks again for chiming in here!!

On the surface you will need $6K per month minimum to get positive cash flow from a property in that price range.

Your numbers don't work because they can not work. This property is best suited for someone with deep pockets simply looking to park cash with no concern for making money. Best suited for faith investors if it is in a high appreciation markets.

@James Wesley If your market, it will be hard (not impossible) to cash flow. Unlike Texas, Florida and other economically vibrant states (like Washington), your purchase price is very high. But you also benefit (historically speaking, only) from a higher capital appreciation rate than other markets. 

Folks in most markets would kill to have the capital appreciation that Seattle has gone through. 

As @Kenneth McKeown has pointed out, you should have your realtor pull comps. If you are in-line with comps (which I think you will be), then you have to take a hard decision - do you bet on making minimal or negative cash flow and get potential juicy capital appreciation OR find another deal. 

Sounds like a major negative cash flow situation. Have you run the numbers on it?

Originally posted by @James Wesley :

First time multi-family investor here. Using the Rental Property Calculator But having a hard time reconciling the number since I keep coming up with negative cash flow regardless of how I update the numbers. Thoughts on this Dallas duplex in great area?

$659k list price

$4100 in current rents..close to average. 

I'd put 25% down with 5% loan.

Thanks!

James

As others have posted there aren't enough details to do the analysis.  I suspect I know the area, but I regardless having looked at a bunch of duplexes in Dallas, I cant imagine that you can cash flow with $4,100 in rents and a $659K purchase price, especially when you factor in property taxes, management, capex etc.

 the Dallas Property taxes are very high since there isn't any state income tax. 

Hi James,

Is there a reason you are looking in Texas for a duplex as it looks like you live in Seattle? Given the price point and down payment you could buy something a lot closer to home in that price range. Additionally, self managing the property would help you some with the negative cash flow every month.

Personally, I wouldn’t consider something that doesn’t cash flow every month. Appreciation is great but if that doesn’t happen for whatever reason you can end up in a tough spot.

Best of luck on finding your perfect property.

The numbers are like -$800 cash flow, so yeah you all validated and aligned with the calculator that this is a poor deal. I lived in Dallas for 7 years and currently have my old SF rented out. So I already have a Realtor, Handy-man and Property Manager setup here, so I have a good base to do deals here rather than setup a new team.. It's easier to cash-flow here than in Seattle (of course with the right deal).

Do you have thoughts on the values that should be inserted in the calculator?

*Vacancy

*Repair & Maintenance

*Capx, as well as future assumptions:

*Annual Income

*Annual PV Growth

*Annual Expenses Growth

*Sales Expenses

Sounds like you need a new Realtor. No disrespect to the one you have, but he should be feeding you all this information and more, and making sure to crunch the numbers for you before he ever presents a property to you. Otherwise what is he doing? If he’s just a “door opener”, he isn’t providing you enough value or guidance.

Originally posted by @James Wesley :

The numbers are like -$800 cash flow, so yeah you all validated and aligned with the calculator that this is a poor deal. I lived in Dallas for 7 years and currently have my old SF rented out. So I already have a Realtor, Handy-man and Property Manager setup here, so I have a good base to do deals here rather than setup a new team.. It's easier to cash-flow here than in Seattle (of course with the right deal).

Do you have thoughts on the values that should be inserted in the calculator?

*Vacancy

*Repair & Maintenance

*Capx, as well as future assumptions:

*Annual Income

*Annual PV Growth

*Annual Expenses Growth

*Sales Expenses

We have looked at most of the duplex's that have come on the market over the last 5 or 6 years.  Honestly, I think I might know which property you are talking about.

Regardless, what we are finding right now is a many if not Most of the duplex's in close proximity to downtown are being valued as tear downs for multi family properties, at least in the background.

I really think the >$2,000 rents in Dallas are on the high side, especially as it seems like there are a lot, if not too many luxury apartment buildings going up.  and there are some small signs that the top end of the Dallas rental market are showing some cracks.  I think a duplex at the top of the market might be subject to a correction in the near term and not really see any price appreciation for the next few years.

We personally are being more selective about the properties we are buying.

@James Wesley I used to buy my first couple rentals but that was 5-10 years ago when the rent to value ratios made sense. Look if you are investing for appreciation then go ahead.

You will not cash flow on anything less than .8% rent to value ratio with 80LTV loans.

@James Wesley - one of the three things are happening. 

1. rent is not up to market
2. taxes are extremely high
3. property is just way over priced

What do you think is the leading cause for your negative cash flow analysis?

Thanks everyone for the input here and validating the calculator's results. Another challenge with Dallas is the 2.72% sales tax...impacts cash flow greatly, plus the rents aren't high enough to support the purchase.

I'll keep on truckin' along searching in both markets (Seattle and Dallas) and adjust my strategy for seeking out deals. It was a good learning experience seeing what's going on in Dallas. Cheers!

Yeah, those numbers don't work for me either. A quick rule of thumb is using the 50% rule to calculate cap rate. Your annual income would be $49.2k. Cut it in half, there is your estimate for net $24.6k. Take that and divide by your sales price and you come up under 4%. I like at least 8% to even consider. This is a walk-away in my book.