Low Cap Rate and Cash Flow related Confusion?!

[Joe Pearson]

So, color me confused. For example, a duplex in Manchester, NH could go for $210k and both units could be rented for a total of $2,400 per month. That means the NOI could be $1,119.67, Cap Rate of 0.533 % and Cash Flow of -$99.33.... Here's the per month numbers I'm looking at with an FHA Loan for 30 years & 3.5% down payment at 4.85% interest:

Expenses:

• Taxes: $391.67
• Homeowners Insurance: $66.67
• PMI: $150
• Vacancy (5%): $120
• Repairs (5%): $120
• CapEx (8%): $192
• Property Management (10%): $240
• Mortgage: $1,219
• (Tenants would pay for utilities)

And... like, this isn't even accounting for Lawn care or Snow removal...

Total Expenses: 2,499.33

NOI = $2,400 - $1,280.33 = $1,119.67

Cap Rate = $1,119.67 / $210,000 = 0.533%

Also, for the 1%, 2%, or 3% rule this comes in at 1.143% = $2,400 / $210,000

So, this is being generous, really. $210k is on the lower side and I'm assuming I'll take care of the lawn/snow.

I'm most confused at how this can really change in any one direction to make it meet the 8% cap rate or the 2% or 3% rule... like the only way I can see it meeting those is by jacking up rent or getting the house for free by a family member. *slams head on desk*

-Joe

[Adrian Stamer]

I could be wrong but I believe you forgot to multiple by 12 for 12 months of NOI earnings

Cap Rate = $1,119.67 / $210,000 = 0.533%

should be $1,119.67 * 12 months

Originally posted by @Joe Pearson:

So, color me confused. For example, a duplex in Manchester, NH could go for $210k and both units could be rented for a total of $2,400 per month. That means the NOI could be $1,119.67, Cap Rate of 0.533 % and Cash Flow of -$99.33.... Here's the per month numbers I'm looking at with an FHA Loan for 30 years & 3.5% down payment at 4.85% interest:

Expenses:

• Taxes: $391.67
• Homeowners Insurance: $66.67
• PMI: $150
• Vacancy (5%): $120
• Repairs (5%): $120
• CapEx (8%): $192
• Property Management (10%): $240
• Mortgage: $1,219
• (Tenants would pay for utilities)

And... like, this isn't even accounting for Lawn care or Snow removal...

Total Expenses: 2,499.33

NOI = $2,400 - $1,280.33 = $1,119.67

Cap Rate = $1,119.67 / $210,000 = 0.533%

Also, for the 1%, 2%, or 3% rule this comes in at 1.143% = $2,400 / $210,000

So, this is being generous, really. $210k is on the lower side and I'm assuming I'll take care of the lawn/snow.

I'm most confused at how this can really change in any one direction to make it meet the 8% cap rate or the 2% or 3% rule... like the only way I can see it meeting those is by jacking up rent or getting the house for free by a family member. *slams head on desk*

-Joe