real life example

[Federico Ramos]

X Guy wants $174.000.00 for a duplex. He owes 105.000.00. he's had 8 back surgeries and doesn't want to be a landlord anymore. montly house expenses come to $868 (mortgage, insurance, taxes) first floor rented for $750 second floor rented for $775. that's $657 cashflow! repairs stimated to be at around $5000. i haven't been able to find any comps that relates to this particular property. any thoughts and/or suggestions on this deal? i want this deal to be a win win win... but hesitant about how to approach the owner with a deal.

[Rich Weese]

Just a quick calculation. $1525 monthly for 174K? I think it is AT LEAST 50K too high. Is it an actual duplex or a house that now acts as 2 units? Age? Will taxes go up when you buy it? Utilities? Maint? Landscape? Mgmt ? Assumable mort? Fixed rate? Assessed value for land? Improvement? So many concerns , imo. Rich

[Jon Holdman]

Real life math:

Rent: $1525
Expenses: $762.50 (includes insurance, taxes, vacancies, property management, maintenance, utilities, etc.)
Net operating income: $762.50
Price $174,000
Down: $43,500 (25%)
Loan: $130,500
Rate: 6%
Term: 30 years
Payment: $782.41
Cash flow: -$19.91

Yep, it loses $20 a month even with $43,500 of your own cash in the deal. That's an awful deal.

Clearly you've been told the "big lie" of rental real estate: "cash flow = rent - PITI". Not even close. Read in the Rental Property forum for some reality.

[Mike McKinzie]

I'd offer him $5,000 and take over his loan.

[Jon Holdman]

I'd offer him $5,000 and take over his loan.

Exactly!

[Brian Haskins]

I know a lot of people would buy it just because the cash flow. Some people evaluate multifamily a little differently, treat it like a larger multifamily or commercial property if you can't find comps.

Brian Haskins

[Jarcelyn Dorsey]

Originally posted by Federico Ramos :
X Guy wants $174.000.00 for a duplex. He owes 105.000.00. he's had 8 back surgeries and doesn't want to be a landlord anymore. montly house expenses come to $868 (mortgage, insurance, taxes) first floor rented for $750 second floor rented for $775. that's $657 cashflow! repairs stimated to be at around $5000. i haven't been able to find any comps that relates to this particular property. any thoughts and/or suggestions on this deal? i want this deal to be a win win win... but hesitant about how to approach the owner with a deal.

So Jon

If Federico take over the payments of $868 and he put $5,000 into the deal. Would one analyze it this way:

Rent @ 1525
Expenses @ 762.5
Mortgage payments @ $868
NOI is 762.50
So Cash Flow is 105.5......correct??

Im i missing anything?

[Jon Holdman]

The $868 figure would appear to be the PITI payment for the existing loan. For $174K at 6% for 30 years, I get a P&I payment of $1043. With the same terms, I get $630 for the payment on $105K that the current owner owes.

I think you have a couple of errors in the analysis:

Rent @ 1525
Expenses @ 762.5
Mortgage payments @ $868
NOI is 762.50

For one think the $868 is PITI. The 50% rule already includes the taxes and insurance, so you don't want to count those twice. I'm also not sure you get from $762.50 NOI (I agree with that number) and the $868 number to get to a cash flow of $105.50. Looks like a $105.50 loss to me. But if we guess the P&I part of that at $630, then I get:
Rent: $1525
Expenses: $762.50
NOI: $762.50
P&I payment: $630
Cash flow: $132.50