4 plex in C/C- market

3 Replies

BP, What do you think?

Total Number of Units 4

Purchase Price $80,000

Initial Cash Invested $36,600

Income Analysis Monthly Annual

Net Operating Income $1,250 $15,006

Cash Flow $928 $11,141

Financial Metrics

Cap Rate (Purchase Price) 18.8%

Cash on Cash Return (Year 1) 30.4%

Internal Rate of Return (Year 10) 34.3%

Sale Price (Year 10) $107,513

Purchase Price $80,000

- First Mortgage -$60,000

- Second Mortgage -$0

= Downpayment $20,000

+ Buying Costs $1,600

+ Initial Improvements $15,000

= Initial Cash Invested $36,600

Total Number of Units 4

Cost per Unit $20,000

Average Monthly Rent per Unit $625

Mortgages First Second

Loan-To-Cost Ratio 75% 0%

Loan-To-Value Ratio 75% 0%

Loan Amount $60,000 $0

Loan Type Amortizing

Term 30 Years

Interest Rate 5%

Gross Rent $2,500 x 12 = $30,000

Vacancy Loss -$200 -$2,400

Operating Income $2,300 $27,600

Expenses (% of Income) Monthly Annual

Maintenance (5%) -$115 -$1,380

Insurance (2%) -$50 -$600

Management Fees (10%) -$230 -$2,760

Taxes (13%) -$306 -$3,674

Utilities (8%) -$183 -$2,200

Capital Expense (5%) -$115 -$1,380

Lawn Maintenance (2%) -$50 -$600

Operating Expenses (46%) -$1,050 -$12,594

Net Performance Monthly Annual

Net Operating Income $1,250 $15,006

- Mortgage Payments -$322 -$3,865

- Year 1 Improvements -$0 -$0

= Cash Flow $928 $11,141

Would you do it?  Do you think the estimations are off or low?

Thanks,

Jesse 

@Jesse Richardson - Overall, the numbers look good, except for your capital / maintenance expenses. I would expect those combined to be closer to $600 monthly, because you will likely have a lower class of tenants and you will be dealing with 4 separate units, which means 4 separate bathrooms, kitchens, etc to maintain.

I cannot get much more specific though, given that I do not know anything about the layout of the building or the specifics of the neighborhood.

Nice breakdown. Your numbers seem solid on paper. Where is this $80,000 4-plex? Stick a zero behind that and that's what 4 plexes can run in my neck of the woods. I couldn't imagine a place that cheap.

Medium logo stacked badge r web  1 Neal Collins, Latitude Realty & Property Management | [email protected] | (503) 974‑6633 | http://www.chooselatitude.com

Originally posted by @Rick C. :

@Jesse Richardson - Overall, the numbers look good, except for your capital / maintenance expenses. I would expect those combined to be closer to $600 monthly, because you will likely have a lower class of tenants and you will be dealing with 4 separate units, which means 4 separate bathrooms, kitchens, etc to maintain.

I cannot get much more specific though, given that I do not know anything about the layout of the building or the specifics of the neighborhood.

I agree maintenance and CAPEX are little low for C/C- area. Also, you may have higher than an 8% vacancy rate depending on area and state laws. How long does it take to evict in that state?

Insurance $600/year?  I would love to pay that little.  Again location driven.

If the PM charges a lease up fee, which most do and is usually 1/2 to 1 month's rent depending on local practices, then that would seem low too.

All and all, you have done quite a bit of research.  However, in C/C- areas, and as a rule of thumb, expenses are always higher and income lower due to vacancy/economic vacancy.

What is the city/state?  How does the crime look like in the area?  If you don't know, then call 10 PM's and see if they would manage apartments in that area.  If the majority say no...You could also check local databases for crime info.