All Forum Posts by: Mike C.

I like to plan for the worst case.  That 15% vacancy would not even cover one unit being vacant for any significant amount of time.  This example property also has many items nearing end of life, so I believe 15% is appropriate in the expense category.  

Giving this a bump

So income is $1500 a month

30k financed @ 7%

120k financed @ 4%

After those monthly payments and taxes/insurance, what is your actual cash flow?

exactly, but gotta wait for someone who knows to chime in

Yeah, I am also confused by this.  Lets do an example:

Property Cost: $360k

Monthly Cash flow: $2550 (after 10% expenses, 10% vacancies, taxes, insurance, self manage, tenant paid utilities)

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$2550 x 12 months = $30,600 / 360000 = 0.085 * 100 = CASH CoC of 8.5%

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Lets say the loan rate is 4%, commercial, 25 years

20% down of $360k is $72k, so actual loan is for 288k with an average monthly payment of $1,520

$2550 monthly cash flow - $1520 = $1030 * 12 months = $12360 / $72k = 0.17 * 100 = LOAN CoC of 17.2%

..but in those 25 years an additional $168k is paid in interest

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So, if I did that right. Loan CoC is better, but not really?

Yes, this property will be self managed. 

How do people typically determine cap rate for an area?, especially when multi-units like this example are very rare in said area? I was always unsure about this.

Lets say we have a 6 unit property built in the late 80s with these specs:

2 bedrooms, 1.5 baths, single car garage, laundry hookups

$4500 total rent per month ($750ea, all utilities paid by tenants)
-$800 taxes
-$200 insurance
-$675 expenses(10%)
-$675 vacancies(10%)
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2170 monthly income(cash flow), if all units are rented
1645 monthly, if 1 unit is vacant
1120 monthly, if 2 units are vacant
595 monthly, if 3 units are vacant, lets hope it does not get worse than this

Property will be paid for with cash. No major issues with the property and nothing that needs immediate attention. Roof, windows, doors, garage doors, gas forced air furnaces, AC heat pumps, appliances(stove, dishwasher, fridge may have been replaced, but still dated), and toilets all original, so about 30 years old. Gas hot water tanks are not original, fairly newer, maybe within the past 10 years.

Lets assume the rent is good for the property and area. Lets also assume school district/job market is good and crime rate is low. 10-15 minute drive to cities/shopping/work. This property will not be located in a major metropolitan area.

Updating units slowly may be beneficial, however, only expect rent to increase 50-$150 range.

If there is another piece of information that is needed, let me know. If not, what would be a good/ideal buying price for such a property?

Yes, I factored in all costs.  My offer was much lower than what it sold for.  I have to wait a bit to get the real sell price, but I guarantee you it was in the 270-285k+ range.

The only similar property that was sold recently(2019), that I know of, was this: https://www.realtor.com/reales...
This 5 unit property was owned by the same person.  They got 240k + the buyer may have paid for complete sewer replacement or split it.
Property was 5 units, ~$500 rent + utilities each, ~4k taxes, had vacancies when sold
I was outbid fairly significantly on this one too..haha

In this area you can have duplexes at 20-50k or 100-150k, it ranges greatly.  Decent town homes likes these are very rare..

Link to property listing

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I was already outbid on the above property, so I would like to see what you guys would offer for this property. I seem to greatly under value any property I am interested in.

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Notable property information:

• 2 units have been vacant since January. 4 are currently rented, all month to month. Tenant #1 has been there for ~2 years, Tenant #2 ~5 years, Tenant #3 ~ 8 years, Tenant #4 ~15 years(elderly, recent circumstances may lead to moving)
• 3 units have a rent of $475 and one unit is $550. The unit pulling in $550 is due to shared sewage. I believe the rent is reasonable for the area. Check out a nicer place's rent: https://aspen-woods.net/
• All the units are completely electric. The electric baseboard heat can run 300-400+ a month and insulation is crap.
• All units have separate utilities except for the previous statement about the sewage.
• Taxes are ~$5400
• First floor ceiling is only 7ft at entrance.
• Built in 1966 and built solid, however, very dated. Renovations and repairs would probably be needed.  One unit seems to have been slightly renovated 2-3 years ago. -->https://www.zillow.com/homedet...
  
• Repairs were done to the bear minimum.
  
• Roof and some windows/doors have been replaced sometime in last 10 years.
• .5 acre lot
• Each unit has 2 bedrooms, 1 full bath, eat in kitchen, and living room on the 2nd level. A small 1 car garage(only 1 tenant actually uses it, cannot open car doors easily), laundry/storage room, and a "bonus" room right when you walk into the units is on the first floor.

If there is any more information that you need, let me know.