So I was wondering if any of you can share any templates or rules of thumb you have when deciding if a property is worth the investment. For example, I recently purchased a 5-plex (3-1 bed and 2-Bach) in London Ontario (1.3% vacancy)for 340,000$ I estimate 40,000$ needed to bring the building to tip top shape. I can get around 42,000$ per year in rental income once I renovate. Annual expenses will be about 6500$ total. So my question is..... did I pay too much for this building? From my numbers I cash flow about 20,000$ a year pre-tax. Is there a formula you have that can let me know how much I should pay for a property based of the historic numbers?
Secondly I was also thinking to turn the basement into 2 more bachelor units. How hard will it be for me to get the property rezoned? Can I apply before I am the actual owner? Any help will be greatly appreciated.
My initial investment for this will be about 76,000$
No idea, but wow that looks good .. sounds to good to be true but i hope it is true :). good luck
@Michael Sifontes It's a little late now to be asking that question. You own it, so make it work. Improve it and manage it well and over time, it will pay off. The good news is that you will be an expert in a short period of time.
Your expenses will be much, much higher than $6500/year. Property taxes, insurance, vacancy, maintenance/repairs (10-15%), replacement reserve (5-8%), utilities (gas, electric, water, garbage), advertising, management, accounting, city licensing fees, etc.
Even with that, this looks like a fair deal
Rule of thumb: OpEx 50% of the Income. OpEx does not include mortgage and distributions.
Its a workable investment. As others have pointed out expenses will be much higher than you think. 50% is a rough estimate based on long term hold including cap expences. Initially you may get by with 40% if lucky.
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