I just received a counter offer for a property with 2 homes on 1 parcel.... Of 221k ... 1 house is 3 bed 2 bath rents for $1250 mo. Second house is detached and rents for $ 900 month include garage....seller claims cap rate of 9... I'm Thinking 7, I don't see maintenance accounted for or much vacancy accounted for...thoughts?
Seems like a good deal, given the information you provided. A big question I would have is how are you purchasing the property? a 5% interest rate results in a payment of ~$1200. That results in a positive cash flow of $950 before the variables of taxes, insurance, maintenance, and vacancy. Whether this is a good investment depends on what your net cash flow goals are and what values the variables carry.
I'd be interested in that cash flow ballpark, but no two investors are alike!
Many landlords don't know how to calculate the cap rate. Many times they do not include the value of their labor whether it is management or maintenance. They may look at their maintenance cost only over the last year. Another expense is the capital reserve which is use to pay for big things that come up.
Remember, your cost of buying includes costs of inspection, getting loan, etc. You are assuming n expense ratio of 40%. That will be difficult to maintain.
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