Looking to purchase a Quadraplex. Here are the numbers.

9 Replies

I’m an agent and 1st Time Real Estate investor and I want to run this deal by you all. The quad is in a good area and fully occupied. It brings in $3,150 Monthly in rent. Estimated mortgage payment is $2,400 Monthly. Taxes annually are $3,110. Leaving a cash flow of $751 a month. Let me know you you all think about this deal. The good, bad, & the ugly. Purchase Price $425K Monthly Income $3,150 Monthly Payment $2400 Cash Flow $751 2 (2/1) & 2 (3/1) units.
Rashad Jones Jennings, Real Estate Agent in GA (#361693)

Hello Rashad, I have a couple of questions that may help me get a better idea of your situation:

1) Does the estimated monthly payment include taxes and insurance? or is that simply principal and interest? (I'm going to go ahead and assume that it is only principal and interest since you quoted the taxes separately.)

2) Since the taxes are assumed to be separate, the monthly cash flow is now reduced to $491 ($751 - $260; which is $3,110/12=259.16). It will be reduced even more in the event the insurance isn't included as well.

3) What other expenses can you expect throughout the year? (i.e. vacancy, minor repairs, utilities, HOA, management fees, etc...)

4) How is the property in terms of necessary repairs? Is it good to go or are there some major items that would need to get taken care of immediately?

(409) 332-4931

Hey Frank thanks for the reply. Yes the taxes are included. There is no HOA fees. I would set aside some money for minor repairs (cap ex). It’s fully occupied and good to go. Will get an inspection done during the due diligence period.

Rashad Jones Jennings, Real Estate Agent in GA (#361693)

Doesn’t look promising based off Frank’s feedback, and you have yet to factor in Vacancy and Cap Ex. Unless there’s an opportunity to improve the building, add revenue via things like laundry/storage, get concessions from the seller this one doesn’t look to attractive. Some of the basic requirements i.e. 1X rule, $100/door/ valuation of 10K gross monthly rents are not being met here. 

Way to put yourself out there though. Good luck to you. 

No problem Rashad! I'm happy to help. 

Before getting the inspection, I would recommend getting a bigger picture of all the expenses you're likely to encounter. This will give you a better idea of how the cash flow is really going to pan out. It doesn't hurt to err on the wrong side of caution. 

Further, setting aside money for minor repairs is a great idea. However, I believe that the approach to take when analyzing this (or any for that matter) investment, is to assume those expenses are going to be needed. 

Best of luck!

(409) 332-4931

$751 mo cash flow x 12 mo = 9012/yr

Assuming 25% down on 425k is 106250 up front investment.

9012/106250 = 8.48% ROI

Not great, but okay. However your cash flow is wrong. You haven't accounted for vacancy, repairs and maintanance, CapEx, nothing. That seems like an over optimistic move. Taking off 5% for vacancy and 5% for R&M and CapEx, (750-315), you are at 435 mo cash flow x 12 = 5220/106250 = 4.91%

So more realistically, you are ranging from 5% to maybe 8% ROI (that would be a year where nothing needs a repair, no one moves out, nothing needs maintenance, in other words, not gonna happen.)

Unless you are banking on extreme appreciation it doesn't look good.

Originally posted by @Tandi Hufnagel :

$751 mo cash flow x 12 mo = 9012/yr

Assuming 25% down on 425k is 106250 up front investment.

9012/106250 = 8.48% ROI

Not great, but okay. However your cash flow is wrong. You haven't accounted for vacancy, repairs and maintanance, CapEx, nothing. That seems like an over optimistic move. Taking off 5% for vacancy and 5% for R&M and CapEx, (750-315), you are at 435 mo cash flow x 12 = 5220/106250 = 4.91%

So more realistically, you are ranging from 5% to maybe 8% ROI (that would be a year where nothing needs a repair, no one moves out, nothing needs maintenance, in other words, not gonna happen.)

Unless you are banking on extreme appreciation it doesn't look good.

Thanks @Tandi, in a perfect world what is the ROI you should be looking to make?

Rashad Jones Jennings, Real Estate Agent in GA (#361693)

"It brings in $3,150 Monthly in rent. Estimated mortgage payment is $2,400 Monthly. Taxes annually are $3,110. Leaving a cash flow of $751 a month."

One thing you didn't not specify, does this quad had separate utilities? If so, which are divided?
If you had to pay utilities on all of these units, you would be losing money.
General estimate on utilities I would use:
Electric - $50/month
Water - depends greatly on the area $50/month
Trash - probably billed yearly. $200-400

With just these 3 you would be losing. Doesn't even factor TV or Internet, or sewage.
Hope this can help clear up any misunderstandings.

This will be pushing, if HVAC, water heater or roof repair will easily make you cash flow negative. Repairs are inevitable, it's matter of when. I personally would pass on this one unless it has significant upside potential of higher appraisal. Target about 12 to 15% cap rate.

@Rashad Jennings 

I agree with @ Al Pat that a target cap rate of 12-15% (after taking into account all the costs, and also any utilities as @Nate Kaminski mentioned) is a good place to start.  

Think of it this way: you can make 7-8% invested in a good selection of Vanguard mutual funds without lifting a finger. REI should outperform other investment choices, or else why would you do it? Unless you really like being a landlord?

To be fair, there are the other ways the REI benefits financially, in addition to cash flow: property appreciation, tax deductions, loan pay down, and some would add control over your investment and the ability to force appreciation.

However you want to aim for a cap rate in the teens up to 20%, especially if this is your first investment and you want to build a portfolio off the cash flow.

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