First time buyer and curious if my math is correct?

11 Replies

The basics:

4-plex containing 4-units consisting of 2BR & 1BA each.

Cost:  $265,000  /  Estimated mortgage w/ me paying water & sewer is $1,350

1% rule:  $2,650

Estimated Rent:  $700/mo (tenant pays lights & gas)

4-units x $700 = $2,800 (this is >= the 1% rule)

$2,800 (rent) - $1350 (mortgage) = $1450 cash flow

*If I house hack and live in the 4th apartment, then my cash flow is ($2100 - $1350 = $750)

Am I missing anything, or do the numbers make sense?  

Hi David, you've got the basics down but there's a lot of additional expenses that can eat away at cashflow. You mentioned your mortgage payment of $1350 includes property tax but does it also include home insurance? Is your financing below 20% which would require PMI? Is the property in an HOA? Will the property need routine gardening? You'll want to account for maintenance and vacancy of maybe 5% each. You mentioned that you might live in one of the units so it sounds like you plan to manage the property on your own; if not, professional Property Management runs 8-10% of gross revenue. Note that 2bed/1baths will have moderate turnover so you might be paying a make ready costs (paint and carpet) of $500-2K per unit every 2-3 years. Hope this helps!

I am aware of all the extra costs associated with rerenting, vacancies, HOA, etc...My question was just to see if I was getting the "basic" math correct. Bigger Pockets website, YouTube videos, and so forth have been a tremendous help. The entire community here has been amazing! I look forward to posting whenever I finally make that first rental property purchase. Thanks again!

What about all the cap ex? Roof, driveway, plumbing, windows, water heater, appliances, HVAC, flooring, paint, cabinets/counters, structure, landscaping, etc.? Is the property old and there is a risk you have to fix some of these early on? If so, make sure you have enough cash available to fix it. If new unit, just make sure cash flow allows you to save for these expenses.

Our fourplexes are relatively similar to what you are buying but water sewer and garbage doesn’t typically exceed $650 per month. You may need to check for water leaks, drippy faucets, or running toilets (food coloring in tank test). Our sewer bills are based on water consumption. Installing automatic sprinklers (water at night) and removing tenant access to outdoor water will also help. 

Interestingly enough, where I’m currently living, LLs charge a separate utility fees that, in your case, would break down the water sewer bill into four parts, thus encouraging tenants to conserve water. 

@David Brackney

For quick and dirty math I can usually make about $300 a month off a duplex IF it meets the 1% rule AND the tenants pay all expenses. On a four plex you’ll be paying some utilities. You’ll need probably 1.5% rents to purchase price. Make sure all your math are real numbers and not estimated. Being $100-200 off could destroy your profit margins. And do your math as if you are not living there. Now, that being said, if rents are currently $700 I imagine a few cheap upgrades and you’ll be able to raise those at turnover.