Hello. So I am just getting into real estate. There is this potential property the owner is trying to get rid of because his mom is getting older. The multi family has 6 units and they have a cottage on the land - and he is selling it for $299k (worth 319k however). However their mortgage is free and clear. Since I do not have a lot of money to get started I was thinking about a lease option - but again they do not have a mortgage. Any other ideas how to obtain this property? OR IS IT EVEN WORTH IT??? I analyzed the property by putting in 20% down of the 299k but the CF was only 63 dollars. Why do we believe this property is getting such a poor CF?
Hi @Bria Johnson ,
It doesn't sound like a good deal. Let's just say that you can get $83 of cash flow/month. You pay $60k (20% down payment), and get back $1,000/year. That is about a 1.6% return on your investment each year, which is quite low.
Either you must buy for less or be able to raise the rents considerably after purchase assuming they are below market. Keep in mind that from your perspective, as a buyer, a sellers asking price is irrelevant. The actual value is based on what you need to pay to achieve your investment goals not what a seller dreams of getting. Multi units are valued based on cap rates.
The reason there is no cash flow is because the ask price is simply out of line with the rental income. The actual value of the property is no where near 319K and well below $299.