So, we haven't been able to secure a flip but have seen some OK rental deals. I'm currently looking at a 2 family in a decent part of the neighborhood in Amsterdam NY.
I see the breakdown like this:
55K purchase price
Taxes, Ins. Mort. , 90% Occ rate, -10% for repairs = approx $11,160 in annual expenses
2 tenants $650 +750= $1400 mo / $16800 annual income for a difference of +$5640
Water, sewer, garbage all included in taxes.
Renters pay utilities.
As I understand the "cap rate" NAI/PP(-mort) = 0.11
Considering overall property conditions, inspections etc. the numbers seem to work , right?
Thanks for your info in advance!
@Jason Fiet That would be screaming deal here but I also know areas that it would be horrible. You have to determine if it's a good deal where the property is.
Something you said was taxes include water, sewer, and garbage and then on another line you say that "renters pay utilities." Which is it? Can you off load some costs back to tenants and increase the performance of the property? Water and sewer with the taxes is not a common combination. Water and sewer are usually based on usage and are therefore variable but taxes are usually fixed except for annual adjustments moving the cost upward.
You did not post a break down of the numbers so I can not tell this for sure. The mortgage does not figure into expense when you determine net income for your CAP rate calculation. It would appear that you cap rate should be much higher when you remove the mortgage payment from your expenses.
Just on the surface it passes the 2% rule (monthly income is more than 2% of the purchase price). There are no crazy high expenses like Tx property taxes or landlord funded heat and cooling so on the face it bears more detailed evaluation and comparison to other properties on the market in the same area.
All real estate is local. It's a bit like asking if $10K is a good price for a 2 door car which is why the response to your post is limited.
@Jason Fiet like @Bill S. stated water and sewer not common to be included with the taxes...I never heard of water and sewer included in taxes....are you sure that is correct? Also what kind of condition is the property in? Even if there is deferred maintenance on the duplex, on the surface your rental income vs purchase price is awesome! How much are the taxes?
So Bill, yes I agree, the fact that the taxes "include" water and sewer are strange to me. I have confirmed this over the last few months in this area. The rate for this 2 family home is 3K per year. The house around the corner could be 5K, or $4800 very sporadic throughout the city. Couldn't get in the basement at first look, but in decent shape, Newer roof, has renters in it as we speak. Looking to get a second look this week.
As far as deferred maintenance, I'm allocating 10% right off the top.
Thanks for your input!
@ Bill S. When I say utilities paid by renters I'm referring to electric and gas
I figure this,
Taxes -$3000 Rent $1400/ mo
Vac 10% -$1680
Total -$11,160 $16,800 /yr = + $5,640 / yr
Purchase price $55,000
Overall the rents are anywhere from $500 to $850 in the area. 2 family average price is approx. 56K -75K in this area.
I am not familiar with the 2% idea, but seems on the money.
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