How do I know if the “Numbers” will work?

Question

Looking to purchase my first duplex. What numbers do I specifically look for in “Making the numbers work”? I know enough that if a duplex both side rents a couple hundred dollars over the mortgage than you’re in the green.

Nathan Gesner · Answer

You start with the rent income. Subtract your estimated percentages for maintenance, capital expenditures, vacancy, property management, taxes, and insurance. Subtract the cost of your mortgage (principal and interest). What you have left over is considered "cash flow". Most investors will try to aim for at least $100 cash flow per month, but that depends on your situation, the market, and other factors. Just assume $100+ is a good starting point.

Here's just one of many examples of how to evaluate a property:

(137) How I Quickly Analyze a Rental Property for Cash Flow | BiggerPockets - YouTube

Here's just one of many examples of how to evaluate a property:(137) How I Quickly Analyze a Rental Property for Cash Flow | BiggerPockets - YouTube

Theresa Harris · Answer

Add in insurance, whatever is included in the rent (eg water), taxes, vacancy, repairs and other costs (sewer, garbage, etc).  For utilities, is there one meter or is each unit on its own meter?  IF the latter, then do NOT include utilities.

Bjorn Ahlblad · Answer

@Kerry Pangan your assumption above is hopeful but wrong. You need to focus on the basics and understand the numbers. Brandon Taylor has podcasts that are very good and have a look at the BP bookstore as well. Underwriting and tenant screening are vital to any investors success.

Carlos Ptriawan · Answer

You need to know:1. cost of fixing repair HVAC2. average PM cost when tenants move in/move out3. Painting/drywall cost4. Cost to replace refrigerator,heater,appliance,gutter, roof , etc.There's no such thing that repair cost is a 15% rental fee. The cost to replace HVAC is not much different in CA,MI or WI.5. handyman/plumber cost/visit to fix pipe leaks here and there.6. If you expect only $100 cash flow from one unit, for sure you will never cash-flowing.Rather than having repair cost as a percentage, it's wiser if you put an absolute number for R&M for one property for the duration during ownership, for example, for a duplex it's safe to have $25K budget. It's also good if you have above-average tenant quality, I could say a tenant that pays $1K will be better than a tenant that pay $800 on the same zip code.It's also good to have a realistic forecast on IRR/EM after 5-10 years of ownership, so at least if the CF side is not performing, at least appreciation in the future will help you.  How do you get this number ? find comparison from similar multifamily in the area.

Nathan Murith · Answer

@Joshua Mason have you used deal analyzers or calculators? there are some pretty simple ones out there, including the biggerpockets ones that really help you capture all the necessary numbers and runs the analysis for you.

We use a couple, happy to share any of those if interested.

Alecia Loveless · Answer

@Kerry Pangan Use the Bigger Pockets Rental Calculator to calculate all your expenses. The price and taxes should be on the listing and then your agent should be able to get the rest of the expenses from the listing agent to fill in the calculator. If they are not given, do your best to reasonably estimate them.

For instance in my area landlords often pay the heat and sometimes the heating costs of a building are included and sometimes they are not and you have to estimate them based on square footage and age of the building.

Then you hit the calculate button and it tells you your cash flow, your ROI (return on investment), yearly projections based on set increase in rents and cost increases and some other things. If I’d very helpful. You can use it 5 times for free and unlimited with a Pro membership.

Allen Wu · Answer

@Kerry Pangan

Open to everyone’s feedback. I keep it simple and used this:

a) mortgage and interest

b) property tax

c) insurance

D) HoA and other utilities / feeds

E) property Mgmt fee

F) 15% of rental price

The some of above monthly cost is my all in cost. So if rent comes in higher than above, I’m in the green and I’ll move on a deal only if it’s in a class A or B area. I do not invest in C or D high cash flow areas.

Kerry Pangan · Answer

Thank you everybody who commented. @Nathan G. the Youtube that you recommended helped significantly.

Nathan Murith · Answer

@Joshua Mason I’ll DM you

How do I know if the “Numbers” will work?

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