deal or no deal ?

Question

alright i found an ad from a developer that is selling a 2 family in my area. Now I live in what would be considered an upper middle class neighborhood that is in a booming area with a very nice school district.... Now that being said, the developer is selling this 2 family for $250K...

now how much rent would you have to collect for this to be a deal to you? It is a brand new 2 family so operating cost should be held to a minimum at the begining...

now how much rent would you have to collect for this to be a deal to you?  It is a brand new 2 family so operating cost should be held to a minimum at the begining...

Jon Holdman · Answer

Depends on your goals for cash flow and your expense assumptions.  I compute your monthly P&I payment at $1580.  6.5%, 30 year.

If you want $100/month/unit, and you apply the 50% rule of thumb you need $1780/unit in rent.  That's $1780 x 2, less 50% for expenses, giving a $1780 NOI.  Less the $1580 payment gives you $200/month cash flow.

If you say you'll manage them yourself for free (which is pretty much my assumption), then assume 40% for expenses.  Now you need $1483 per unit in rent. That's $2967 total, less 40% for the same NOI.

The property being new will reduce your up front rehab and capital costs, but won't prevent tenant damage or the need for new carpet and paint when you have a vacancy.

Kyle Gregory · Answer

thanks for you input john, when i first saw it i was saying to myself "damn  brand new, nice area and close to my home"  then i said "how in the hell can these guys get that?"  then i said  "who in their right mind will pay this price?" ....   I guess i am trying to get into the developers mind... figure out why he is asking such an exoratant amount