Hello, I am a new investor looking in my surrounding areas for a 4 unit to buy and rent out. I'm hoping some of you more experienced investors can enlighten me on if I should check out other areas or if its possible for markets like this to cashflow. Rental rates for the 4 units in my area average about $475 per unit. That's 22,800/yr of Op income. Avg price is about $130,000. And tax is about $4500/yr. I know theres many more expenses between vacancy,insurance,maintenance,cap ex, etc.. However, I would like your opinion on if these types of numbers with the lower rental rates can still cashflow. Any advice/opinions are greatly appreciated. Thank you!
@Drew McCrory I do not know your market; but 475/mo is definitely low rent. If you are experienced and recognize the challenges with lower income tenants, this can be a good business. Low income/low rent is far more labor intensive; do not think a PM will resolve all your problems either, a PM is a filter not an eraser, and they charge for every action (as they should). If you are newish to LL'ing you might look at higher quality buildings and easier to manage tenants paying higher rent. All the best!
@Drew McCrory I would say this probably a pass at that price.
I own some stuff like you just mentioned, rent wise (around 400-450 a unit) and I usually only buy it if I can get it somewhere in the 2-3 percent rule range.
For example, in your example gross rent is 1900. So 1900 divided by .03 is 63k. The two percent rule would be 95k, so I’d say somewhere in that range, MAYBE consider it.
Also for these types of property, I like low to no debt. Helps hedge risk against the tenant type. Scale is also very important. You want 10-20 and beyond units as fast as possible.
For $500 rent.
You shall pay $20k per unit