4 Plex Considerations

[Scott Ruppel]

All,

I'm thinking about branching out into a multifamily purchase.  I found a good candidate property - $2360 monthly rent received.  It's for sale for 310k, so when I put all the factors into a calculator I'm getting a negative monly cash flow of $100.  So the deal is no bueno.

Tweaking the calculator I find a monthly positive cash flow of $128 and cap rate of 5.8% if I can get the property for 250k.  This is a fairly steep discount from the asking price.  I'm using conservative estimates for expenses and vacancy.  It's a C class property.  I'm planning on putting $20k in to raise the rents.

What am I missing in analyzing the property?  Is 5.8% cap rate sufficient (this is in NM)? 

Thanks for any advice or other considerations.

[Lewis Christman]

I suggest going for 236K that way your rents equal 1% of purchase price.  You need to look at similar properties that SOLD in the area.  is their cap rate 2% or 10% that will tell you how your cap of 5.8 stands in comparison.  You compare to SOLD properties.  Someone can ask any price - you buy based on the numbers.