What am I missing? Multi Family Cash Flow

Question

I live in Columbus, OH and am looking at doing my first multi family deal. On my local MLS I see multiple 4 unit (2 bed 1 bath) properties at approximately $100k asking price that rent for $500+ per unit or $2,000+ total. I'm looking at conventional financing with 25% down and a $375 monthly mortgage payment. Taxes are $3,600 a year. Insurance will be about $1,000. Just under $760 PITI. They are all small sturdy brick ranch style buildings, mostly renovated and need maybe 10k max in additional renovations. They are separately metered for gas and electric and I would pay water. They are in C- neighborhoods. The point where I would stick it out for a year as an owner occupant to do FHA financing and take advantage of the minimal down payment, but my wife feels otherwise. They seem to sell within a week or two after hitting the market and I see a few listed right now most of which are already under contract.

It's very difficult to hit the 1% rule and find solid cash flow in and on the edge of suburbs with SFR's without finding some kind of off market/ foreclosed deal.

Should I be buying every single one of these or is there something I am overlooking?

It's very difficult to hit the 1% rule and find solid cash flow in and on the edge of suburbs with SFR's without finding some kind of off market/ foreclosed deal.

Should I be buying every single one of these or is there something I am overlooking?

Adam Fansler · Answer

@Josh Engelhart have you figured capex? How old is the roof, furnaces etc.

Vacancy?500mo tenants may have a higher turnover

Maintenance ? Lawn care, trash, pest control ..

Property management ?

Lots of factors that add up real quick

Keep us posted on your progress

Peter Lohmann · Answer

I don't have exact figures but was just assuming 50% of rent.

There's your problem. Expenses have absolutely nothing to do with rent. I don't know why investors continue to "estimate" expense by taking a percentage of rent. If anything, the lower the rent the higher the expenses, not the reverse!

Jacob Ehrgott · Answer

@Jessie N. I agree I never even consider appreciation as I intend to hold long term just speaking in generalities as to why someone may choose SFR.

Josh Engelhart · Answer

Rental comps in the area are all 650 or above per zillow, craigslist, and the listing. I used lower rent in my estimates to account for worst case scenario, neighborhood downturn, etc. I left out expenses because I don't have exact figures but was just assuming 50% of rent leaving great cash flow after the mortgage and decent cash flow after PITI.

My big fear is just wondering how these are available on the MLS. I've run the numbers on hundreds of SFRs and they never look anywhere near this good. Are there just that many fewer multi family buyers or are there so many eviction and rent delinquencies that expenses would go way over 50% of rent? Or is this why most investors recommend multi family and commercial?

Peter Lohmann · Answer

Adam has it. You're missing lots of real expenses. C- neighborhoods have high turnover also, and each turn is usually a few hundred to several thousand dollars, plus lost rent.

Mike Shepherd · Answer

Hi Josh, I bought a similar property, 5 units, 14 years ago. In what is a c market n NJ. I renovated it and rented it up.  Cash flow, if your calculations are correct, is for real. Clean up exterior, freshin up exterior paint, put ownings on, do easy maintenance landscaping, add a coin operated laundry for additional $100 per month at $1.50 for washer and dryer each, increase rents in between tenants or at anniversary dates.  Buy as many as you can. These areas are block by block, my improvemenets to exterior really improved this block/section of the neighborhood.  People in this area at this income level desire my property.

Brandon Schlichter · Answer

I'd be careful depending on neighborhood, there are certainly deals all over town but investing in solid C neighborhoods can be extremely problematic.

How much does it cost to re-wire it after crackheads have stripped all the copper out? How much will it cost when all your tools are stolen because you didn't have bars on the windows? Do you have a plan in place for rent collection so you won't get robbed every first of the month?I'm certainly not saying to not do it, I've had dozens or even hundreds of people tell me not to get into low-end houses, however You've gotta look at the big picture of low end property and work out tons of issues as compared to higher grade Cs and Bs.

What am I missing? Multi Family Cash Flow

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