Cash Flow Analysis from Investor Perspective.

[Micah Lynell Mortag]

I'm selling an investor/ clients Duplex in Atlanta that is currently rented Section 8 for a total of $3600 ($1800 each side).  The property has some tenant damage but it is not what I would consider a rehab.  Condition is "fair"   I have run comparative market analysis to come up with a value based on recently sold in the area.  I would like to know how an investor would analyze this property form a cash flow POV.   I have MY method, but I would love to hear others...  

PITI (20% down at 6% interest) > $3600

Thanks in advance!

[Victor Steffen]

GROSS INCOME minus PITI, Vacancy, Maintenance, Management, Utilities, Reserves = cashflow.

since your piti is already more than the gross income there's not much to analyze from a cashflow POV. The deal won't work for a cashflow focused investor. 

You will need to lean into the appreciation potential of the asset and future development in the area. 

good luck!  

[Carl Davis]

Like @Victor Steffen said it won't cash flow. This is an issue we see often in the Utah market as well. 

Appreciation is a good  element to focus on however I like to market properties like this to more green investors that could house hack. Someone that may not be opposed to living in a duplex for some, this could cut their mortgage payment in half. If you pair that with the appreciation side of things it makes sense, to me at least.

[Kim Meredith Hampton]

Micah, have to agree with both guys, it won’t cash flow at all right now, and that’s what’s wrong in the current rate environment, numbers like this just don’t make sense from an investor point of view. Is the $1800 “market” rent for the units, are the leases ready to expire? could use raise the rents if they were rehabbed to a better condition? Is the area gentrifying and the investor could count on appreciation? All things to consider when marketing.

Given your information, it would be ideal for a house hack

[Nathan Gesner]

Quote from @Micah Lynell Mortag:

I'm selling an investor/ clients Duplex in Atlanta that is currently rented Section 8 for a total of $3600 ($1800 each side).  The property has some tenant damage but it is not what I would consider a rehab.  Condition is "fair"   I have run comparative market analysis to come up with a value based on recently sold in the area.  I would like to know how an investor would analyze this property form a cash flow POV.   I have MY method, but I would love to hear others...  

PITI (20% down at 6% interest) > $3600

Thanks in advance!

I'll jump on board because I'm in the same boat. I have money to spend on a 1031 Exchange and it's tough to find property that cashflows right out the gate. Fortunately, I have enough rentals that I can wait for the market to catch up and play the appreciation angle.

[Micah Lynell Mortag]

Sorry my formula confused everyone!  Not > but <.  Too much coffee this am! lol My goal is to get a value that makes this a cash flowing investment, which means I would need to work backwards based on the current income.  I wanted to know what additional figure/% you all use to analyze.  

@Victor Steffen   This is GREAT, but what precents?  5% Vacancy, 5% Maintenance, 10% Management?  Both units are metered separately and utilities are the tenants are responsible.  

@Carl Davis This area definitely has room for improvement.  The last closed multi family sale just .2 from this area sold in 1 day with multiple offers $40k over asking....and appraised!  Still driving prices in the multi-family assets in Atlanta.   And YES, house hacking could be a marketing angle.  Great feedback.  Thank you!

@Kim Meredith Hampton. Sorry for the confusion with the numbers. I want to analyze this from a cash flow perspective and hope that it meets the CMA value which is what appraisers will use. This is a perfect-world situation for a listing broker! If the numbers don't work now, then we will wait to increase the rents when the current leases expire. Couple months. The max potential for each of these units with AHA is $2200 per side. Great question :)

Based on a CMA value of $440k, Taxes $7180, the PITI value is $2860. If I need to add 20% fees for vacancy, maintenance & management that's $720 totaling $3580 per month. Tight!!!! Would the equity potential and the option to raise rents later be enough to make this a worthwhile investment?

Thanks Everyone!!!! 

[Victor Steffen]

I invest in high growth markets (central TX mostly) and still use a 5% vacancy factor. Maintenance expenses will be a function of the quality of the asset, not a function of the income collected. For an "A" grade asset with zero deferred maintenance I would set aside as little as $50 per month. Sounds like your units have some wear and tear and will be more "C" grade. $200 per month may be a more appropriate maintenance reserve for you. Management pretty much across the country falls between 8-10% of gross income.

[Micah Lynell Mortag]

You are amazing @Victor Steffen  Much thanks for your time ;) 

[Jonathan R McLaughlin]

@Micah Lynell Mortag other factors include split utilities/potential to condo. You can advertise the potential rents and some people will buy it (may even be true”) run the numbers for an owner occupant though….it’s probably going to be a significant savings in their housing costs at a price greater than many/most investors will want to pay.

You see it a lot in listings “great for owner occupant or investor”=we know it’s overpriced for cash flow but you may think it works