5 Unit Analysis

10 Replies

Hi BP.  Looking at a 5 unit, would appreciate some thoughts if you have them.

5 units, all 2 bed / 1 bath:

Purchase Price: $275,000
Mortgage: 30% Down, 5.15% on 20 Year Amortization
Taxes: $2200/year
Insurance: $2000/year
Maintenance/CapEx: $6000/year
Management: 8%/$2902/year
Administrative: $1000/year
Vacancy: 7%/$2730/year

Rent: $3250/year

I'm getting:
39000 - Income
(2790) - Vacancy
(13702) - Expenses
22568 - NOI
(15437) - Mortgage
7131 - Cash Flow

$119/Month/Unit

Given these numbers, would you do this deal?  Anything jump out at you as off or not quite right?

Thanks!

It seems like your numbers are jumping around a bit.

You say rent is $3250/yr which I assume you mean $3250/m with a yearly gross of $39,000. Then you say Management is 8% and you list that as $2902/yr. Eight percent of $39,000 is $3120 not $2902.

Then you have Vacancy at 7% $2730. That is the proper number with gross rents of $39,000. However, when you're calculating NOI you have vacancy listed as $2790.

Then you have your expenses listed as $13,702. Adding up the numbers you listed it should come out to $14,102.

I'm not sure where this property is by $2200 in taxes seems low. If you're sure of those numbers then no problem.

So first of all I would say you need to be more careful and meticulous. The numbers don't come out too different but just pointing out the attention to detail required.

The other thing that stands out is that expenses are only coming out to about 40% of rents. It's usually 50-55%. So just make sure your numbers are right.

Your response was right on l would had refused the deal on not enough information.

Assuming those numbers are accurate that sounds like a nice solid deal!

This post has been removed.

btw: the expense ratio (Exp / GSI) can easily be held to 30% on a well run rental - - did it from day one for 19yrs in Calif too (assuming self mgmt)

Originally posted by @Jeff B. :

btw: the expense ratio (Exp / GSI) can easily be held to 30% on a well run rental - - did it from day one for 19yrs in Calif too (assuming self mgmt)

Hi Jeff,

Most expense numbers include mgmt of 8-10% so even your 30% would be 38-40% right off. Not disagreeing that it can't help but a property being well run doesn't change the fact that insurance and taxes are what they are. They might be cheaper in CA but in Texas they make up a big portion of your expenses and you can't change that no matter how efficiently you run the property.

It's definitely possible to find a property that can be lower on the expense spectrum but most people underestimate expenses so it's probably better to start at the higher end and confirm with due diligence.

Originally posted by @Michael Le :
Originally posted by @Jeff Beard:

btw: the expense ratio (Exp / GSI) can easily be held to 30% on a well run rental - - did it from day one for 19yrs in Calif too (assuming self mgmt)


It's definitely possible to find a property that can be lower on the expense spectrum but most people underestimate expenses so it's probably better to start at the higher end and confirm with due diligence.

 For initial estimate I would agree.  However, my 30% for SELF-MANAGEMENT is accurate.  Experience matters.

Originally posted by @Jeff B. :
Originally posted by @Jeff Beard:

btw: the expense ratio (Exp / GSI) can easily be held to 30% on a well run rental - - did it from day one for 19yrs in Calif too (assuming self mgmt)

It's definitely possible to find a property that can be lower on the expense spectrum but most people underestimate expenses so it's probably better to start at the higher end and confirm with due diligence.

 For initial estimate I would agree.  However, my 30% for SELF-MANAGEMENT is accurate.  Experience matters.

I agree. But given the audience that information is only pertinent to what could be done some time in the future when that experience has been earned. I think it's much better to be cautious and assume that people asking these questions aren't going to be able to self-manage with the efficiency for them to get 30% operating expense numbers.

@Michael Le   :=)  totally agree.  My thought was only to INSPIRE and at this stage, conservative estimation would be more prudent.

Hi Everyone,

Thanks for the replies!  I certainly did fat finger a few things, I'll try to correct my post below.  And @Michael Le I really appreciate you detailing everything out!  Most of those were my fault, the one question I did have was about Vacancy and Management, the reason we have different figures is I was calculating the 7% post vacancy, not pre.  So (39000 - 2730) * 7% = 2902 as they don't earn if I don't get rent.

Purchase Price: $275,000
Mortgage: 30% Down, 5.15% on 20 Year Amortization
Taxes: $2200/year
Insurance: $2000/year
Maintenance/CapEx: $6000/year
Management: 8%/$2902/year
Administrative: $1000/year
Vacancy: 7%/$2730/year

Rent: 3250/mo

39000 - Income
(2730) - Vacancy
(14102) - Expenses
22168 - NOI
(15437) - Mortgage
6731 - Cash Flow

$112/Month/Unit with Expenses hitting the 43% Mark as calculated by expenses + vacancy cost / Gross Income.  

Also, property taxes where I am in FL are usually really low or really high, not too often in-between. 

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