5 UNIT MULTI

[JJ GONZALEZ II]

5 UNIT

700K PURCHASE PRICE

RENT 67,500

EXPENSES

TAXES 16,500

UTILITIES 3,500

INSURANCE 3,250

HOW MUCH should i allow for cap ex, repairs, vacancy

thanks JJ

[Will Barnard]

A good rule of thumb to use would be to take 50% of the gross rents as expenses (all expenses except debt service). The balance 50%, in this case, $34k rounded up, is what you have left for debt service and cash flow.

For itemized expenses, you should count on 10% for vacancy 10% for management, and cap ex will range depending on building age, location, etc.

Another rule of thumb to see if your property will for surely cash flow is to take the monthly gross rent (in this case $5625) and divide by 2% which gives you your max offer amount. In this case $281,250. So the $700k purchase price appears to be grossly high which would likely result in negative cash flow.