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Updated almost 10 years ago,

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Hayden Cifrino
  • Leverett, MA
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First attempt at analyzing a multi-family - great deal or am I missing something?

Hayden Cifrino
  • Leverett, MA
Posted

Hi, I am new to Biggerpockets and excited to get involved! There is plenty more I need to learn but I have been reading on the subject of investing in multi-family rental properties quite heavily.  I decided to do my first basic analysis on a property I found through the homepath site. I was dissapointed to hear the program has ended, but have since adjusted my numbers to account for a larger down payment and paying for repairs upfront.

4,000sqrft 16bdrm 4br Four-plex

Purchase Price: $140K

Repairs/Appliances: $10K

Total Purchase: $150k

Down payment: 20% / $28k

Plus repairs: $38k

Monthly rent per unit: $1000 (avg. 4bdrm rent in area-$1477, but units only have 1br and I am being conservative)

Total monthly Rent: $4000

Mortgage Payment: $600 (30 year using Zillow’s mortgage calc, rounded WAY up)

Monthly taxes: $400 (based on $220k house value, and current rates, rounded up)

Rent less expenses: $3000

50% rule (assume half of income will go towards management, insurance, and future repairs)

Total monthly cash flow: $1500 ($18,000 annual)

Cash on cash return: 47.4%

Capitalization rate (calculated with purchase price): 12%

Cap Rate(calculated with $220k value): 8.1%

There could be a lot of variability in these numbers (trusting Zillow with house value and mortgage payment, rent may easily be $200 more a month per unit), but this is all hypothetical for practice. As far as I can tell from pictures, the only repairs may be interior painting and a few appliances. Obviously this could all be for nothing if it turned out the property needed major repairs, but I felt (with 0 experience) $10k was reasonable for the evident repairs + wiggle room. Another uncertainty I have is when the 50% rule should be applied. Should I account for insurance+management, then apply the rule? Or is it fine as is? How one should calculate cap rate is also a little unclear. Above I calculated it using the purchase price as well as the value Zillow gives the home. Zillow's accuracy aside, should it be calculated with purchase price or appraised value? 

If my numbers are correct or at least close, this would be considered a good (maybe great?) deal based on what I have read.  I understand the cash on cash return is bloated due to the minimum down payment, but the cap rate looks good regardless. So what do you think?