Fourplex Multifamily Residential Deal in Texas
Hey bigger pockets! I have been an "investor-in-training" for almost a year now, which I am sure could just be a nice way to say that I have not pulled the trigger on buying real estate. Nonetheless, I have been listening to Josh and Brandon on the podcast and reading books whenever I can while evaluating properties along the way.
I found a fourplex with a good chance for positive cash flow. I applied the 50% rule and found that the numbers made sense, and I have been digging for detailed numbers ever since. I intend to take a look at the property in the near future as I have already contacted a realtor.
I would be extremely grateful if you can spot check my numbers and show me where I might be off-track in my reasoning. I should preface with the fact that insurance will be the single largest expense since this is on an island on the Gulf Coast. I should also say that I live about 30-40 minutes from the property and intend to have the property managed for me in as many ways as are practical.
Here are the numbers:
List Price - $129,000
Revenue ($/Mo):
Monthly Rent - $2500
Assumed Average Vacancy - 10% (currently 100% occupied)
Assumed Average Rent - $2250
Expenses ($/Mo):
Homeowners Ins & Home Warranty - $597
Flood Insurance - $67
Property Tax (2.55%) - $274.13
Sewer & Trash - $150
Management Fee (12%) - $300
Landscaping Fees - $100
Financing Costs (5% Interest, 5% Down, 30-yr Fixed) - $747 (PMI=$89)
Total Expenses - $2235
Monthly Cash Flow = $2250 - $2235 = $15/Mo
Yearly Cash Flow = 185
The Cash on Cash Return is pretty low, at about 3%.
With the same numbers as above, managing the property myself to avoid the management fee would yield a 59% CoC. With management still in place and a slightly lower sales price, I'd achieve 7% CoC. I know many people consider that a paltry return; however, I'd consider the experience combined with the passive income worth the effort. Maybe someone could chime in with a suggestion about lowering the asking price to match a specific ROI. The Gross Rent Multiplier is 4.3 at the current list price, if you're into that kind of thing.
I am very excited to hear your feedback!