Am I overestimating my expenses on the Rental Calculator?

[Anthony Rullo]

Hello BP Community! 

Long-time lurker, First-time poster. I'm looking to make my first Multi-Family purchase to rent out. When I plug all the numbers into the BP Rental Property calculator, every property I check is operating at a loss (Negative ROI). I live in Los Angeles, and things are currently priced above what I'm willing to pay for my first investment property. Therefore, I have looked into out of state options, knowing full well I'm not familiar with the areas. However, I want to see what my options are. I've looked in AZ, OR, WA, and NV. Almost every property I have checked will lose me money unless it's under $100k purchase price. I have currently run reports on around 25 properties. I put in 20% Down Payment on all properties. I research how much rent I can get in those areas if the listing doesn't state how much rent the apartments are pulling in. Then I check the property taxes and the average insurance for the city. I'm putting Vacancy and Repairs at 5% each. I'm inputting Capital Expenditures and Property Management at 10% each. Then I'm putting all of my Future Assumptions at 1%. I'm currently using LoopNet, MLS, and Zillow to research the properties. If you're still with me after all that information, Thanks! So, onto my questions. Am I overestimating my expenses or have I legitimately not been able to find a decent deal yet? Should I shift my focus to Single Family? Should I look into a different strategy? Or should I just give all of my money to this very credible Nigerian Prince that keeps emailing me? Looking forward to your guidance and wisdom. Thanks!

[Bob E.]

@Anthony Rullo I live in Phoenix and have a few rentals. In addition my wife is a realtor and we have been watching the duplex and 4 plex market for several years. Every year the MLS adds say the same thing, rent is under market at (525-550).

These sellers are not generous, they just cant get more out of the property - the tenants are working poor and have not seen much in the way of wage growth for the last 10 years, they CANT pay more.

Keep looking but know that cap rates are very compressed right now and it is going to take a lot of digging to find even one deal.  If you do find a deal it will be sold in 24 hours so you need to have cash or be pre-approved.  

A better alternative to MLS listing would be to look on Craigs list and call looking for tired landlords.