Evaluating a rental property as a good investment

2 Replies

Let me know if this sounds like a good investment:

$1000000

5800sf building

12 units (10 units=410sf, 2 units=710sf)

410sf rent for $645/mo

710sf rent for $990/mo

4 parking spots

Central Phoenix

Taxes are $3500/year

Tenants pay electric

Water sewer garbage landlord pays

Updated one year ago ($25000 per unit according to seller)

Looks modern with nice upgrades according to the pics

Gated with key card access

How would I know if this is good or not. I used the BP calculator and assuming 30% down that's about 7% cash on cash roi. Basically I'd have about $1500/mo in cash flow after all expenses are paid.

It's hard to figure out the expenses. I think I was conservative but I'm not sure.

Sounds like a cool property overall Derrick. I'm no expert in Multi-Family and am always learning in this business everyday. Based on those figures on just down payment at $300K and cashflow/month...that seems to be 6% COC. You may want to consider all the cash you put into the deal, including fees, etc. to get a more accurate return. At the end of the day if it produces a return that you're happy with, right? We are currently focused on SFR flips with our investors and getting great annualized returns. I'm sure you will get some good feedback here.

@Derrick Umphlett make sure you know where in Phx it is located.  There are still markets in Phx where you want to stay out of. A couple questions:

- sounds like it’s being marketed as a turn key unit.  Good locations in Phx are selling at $130 - 150k a door for turn key class C properties (Cap rate in these areas run in the 5 - 5.5% range).  At $80k a door, you’ll want to look very carefully at the location. 

- only 4 parking spots to 12 units?  You’ll need to discount your rent significantly for units without parking or on-street parking.  Phx public transit isn’t that great - most people want/need a car.  Make sure your rent numbers factor this in.

- For well managed properties we model 45 - 55% expenses and then verify through seller's T12.

- Is your cash flow analysis after debt service?