Looking at a set of #4 four plexes built 1980 in Marion, IA - each unit is a 2 bed 1 bath 700-800 square feet. Here's the numbers.
Rent: $549 per month per unit (their numbers say $585 I think they include coin laundry) - $26,352 annual
Expenses: $11,200 total annual (I factored 60% off gross because landlord pays water/trash)
Taxes - $2568 annually
NO I - $15,152
List Price: $145,000 (per four plex)
Cap Rate: 10.4
Located in a desirable neighborhood/great school district surrounded by newer single family houses/condos.
I have the capacity to buy #3 or maybe all 4 of the four plexes depending on deal I can get (15-20 % down, 4-5% interest rate on conventional 30 yr. Loans mortgage payment on each $640/month). I'd be looking at around $620 cash flow/month per 4 plex (@ list purchase price).
Thanks for reading - any advice/ideas is greatly appreciated.
I think your numbers became messed up somewhere.
It's good to not include coin laundry as that fluctuates up and down in residuals versus the flat rent.
549 X 4 =2,196 a month X 12 = 26,352 yearly so correct there as long as you have verified this is market rent with no security deposit concessions or first months rent half or off to get the tenant in.
Next I would look at tenant loyalty. How long have tenants been there as compared to turnover for stability of servicing the mortgage and find out the breakeven occupancy level for your purchase price and mortgage rate and terms.
Now you said you factored 60% off because landlord pays water trash but the numbers are off.
If 50% you would go X .50
If 60% costs you would go X .40 ( 60% costs ) = 26,352 X .40 =10,540.80 NOI
Let's say 10,540 annual NOI
Take 10,540 / 145,000 = a 7 cap
So it looks like you went the other way doing your calcs.
26,352 X .60 = 15,811.20 which is your annual cost and NOT the NOI.
On these properties you need to see how the other landlords treat their buildings which will impact ongoing cash flow and quality of tenants for you and resale value.
Thanks Joel I did do that backwards. I just listened to your podcast last night (small world - I work overnights as a pharmacist at Walgreens) and thought it was full of great information by the way.
The listing agent provided the following info which doesn't make any sense to me.
Gross Income: $28,080 (divides out to $585/month/unit)
Rent Listed in their current ad online to rent unit is $545/month though with a $300 deposit?
Total Expenses: $8,734
Vacancy Rate: 6% (agent said to use 10% to be safe for this market)
Income: $26,352 (@ $549/unit)
Comparable properties in the area rent for $500-800 in the area, water and/or other utilities seem to be included in some combination in most other rentals locally.
And I looked up the assessment/tax info again (appears to be listed per unit with county)
Assessed value: $32,147 per unit x 4 = $128,588 total
Net tax: $642 x4 units $2568
We are seeing the properties today so I'm hoping to verify some of the actual numbers. Thanks for the advice about other landlords/current tenants - I really appreciate your post/podcast.
They are puffing the stated NOI. Do your own underwriting on the actual NOI.
Might see deferred maintenance when you go in there. Take what the broker/agent says with a grain of salt. Especially if they are not an investor themselves and have never owned multifamily. You look at it totally differently once you have owned a property instead of just brokering a transaction.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.