GRM? Cap Rate?
Hello everyone. This is my first post on the forum besides the new member area. I have been reading a book about investing in Duplexes, Triplexs and Quads. So far, the author has expressed his use of GRM (Gross rent multiple) to do a quick analysis of a property. This ignores expenses, but the author say's that expenses should be fairly constant, which you could argue they are not. What is your method of analyzing a duplex? I am currently looking at a couple of duplexes for sale around my college town. I have found a duplex that is in foreclosure and is 100% vacant. Here is my analysis of income and cash flow
rents $700 x 2 = $1400 a month
Income $16800
Yearly Expenses
($1500) insurance (estimate)
($900) Landscaping
($1,000) Miscellaneous Maintenance
($2,000) Management fee (Don't really have a choice since I will be in saint louis
EBIT = $11,400
($1,700) Taxes (last year was $1500 so I gave myself room)
I get a NOI of 9700 without depreciation and debt service.
Here is my issue, I don't know what to pay for the property.
1.The kitchen's need to be remodeled on both sides, I have a friend that does construction so we would take care of most of the labor. Basically needs new tile, cabinet doors, appliances (including washer and dryer)
2. Need's new garage doors (I think the motors work just needs doors)
3. I won't know the integrity of the room until inspection.
I am going to make an all cash purchase at first so I don't have to worry about financing and paying a mortgage when its vacant... I estimate (and clearly estimate) that I could get away with spending $15,000 on rehabbing and making it look nice without any major finds.... SORRY for the long post