4 plex in Madera - Good deal or no
Hi BP community -
I wanted to pose a question to the community to get some feedback - I am working on project that could lead to us having 3 brand new construction 4 plexes built in Madera, Ca - Currently , we are looking at a sales price that reflects a 6% cap rate. I am figuring that even though we are in the Central Valley - it will likely go to an investor from the Bay Area or even Southern California - as we have a lot of coastal investors starting to look in our area.
We are looking at building 3 bedroom , 2 bath units of around 1200 sq ft with a 1 car garage and laundry hookups inside the unit. In the area 3b apartments / houses are easily getting $1200 a month and considering that these will be brand new - I can see them getting top dollar for rent.
Even if you only collected $1100/ month - have 5% vacancy , use management @10% and have your other basic expenses ( minus cap x for being brand new) .. we are pricing it so that it has a 6.11% cap rate. For a brand new building - that is a good cap rate - if you get top market rents at $1200/ month the cap rate jumps to 6.9% - based on the numbers we are looking to price it out at around $525,000 -
Some investors I have spoken to feel like the price is a little high - but considering that there is no maintenance and everything is brand new there should be very little cap ex and a strong demand - I feel like we are in the right ball park - I even consulted with an apartment manager in Madera who says we are on the right track. Right now there is a 3 month waiting period to get into an apartment according to one of my investors who has tenants looking for a new place to rent - I would like to be able to price these to move quickly , but without leaving a lot of value on the table. If the numbers I've come up with are correct - does $525,000 seem too high for a brand new 4-plex with a 6% cap rate? Any feedback you have for me would be greatly appreciated.
Here are some of the numbers I am using :
| Monthly Operating Income | Scenario A |
| Number of Units | 4 |
| Average Monthly Rent per Unit | 1,100.00 |
| Total Rental Income | 4,400.00 |
| % Vacancy and Credit Losses | 5.00% |
| Total Vacancy Loss | 220.00 |
| Other Monthly Income (laundry, vending, parking, etc.) | |
| Gross Monthly Operating Income | 4,180.00 |
| Monthly Operating Expenses | |
| Property Management Fees | 418.00 |
| Repairs and Maintenance | - |
| Real Estate Taxes | 546.88 |
| Rental Property Insurance | 300.00 |
| Homeowners/Property Association Fees | |
| Replacement Reserve | |
| Utilities | 240.00 |
| Pest Control | |
| Accounting and Legal | |
| Monthly Operating Expenses | 1,504.88 |
| Net Operating Income (NOI) | |
| Total Annual Operating Income ( Gross Monthly x12) | 50,160.00 |
| Total Annual Operating Expense (Monthly Operating Exp x12) | 18,058.50 |
| Annual Net Operating Income | 32,101.50 |
| Capitalization Rate and Valuation | |
| Desired Capitalization Rate | 6.00% |
| Property Valuation (Offer Price) | 535,025.00 |
| Actual Purchase Price | 525,000.00 |
| Actual Capitalization Rate | 6.11% |
| Loan Information | |
| % Down Payment | 20.00% |
| Down Payment | 105,000.00 |
| Loan Amount | 420,000.00 |
| Acquisition Costs and Loan Fees | 5,250.00 |
| Length of Mortgage (years) | 30 |
| Annual Interest Rate | 4.500% |
| Initial Investment | 110,250.00 |
| Monthly Mortgage Payment (PI) | 2,128.08 |
| Total Annual Debt Service | 25,536.94 |
| Cash Flow and ROI | |
| Total Monthly Cash Flow (before taxes) | 547.05 |
| Total Annual Cash Flow (before taxes) | 6,564.56 |
| Cash on Cash Return (ROI) | 5.95% |
Thank you - I look forward to reading your feedback