LOW Cap Rate but GOOD cash flow...Should I BUY it??

[Nick Romano]

Hey guys- SHOULD I BUY THIS PROPERTY??  Thanks so much for the input.

I have a property that is an ideal area.  Rents are going up and rental market is super hot. Currently rent is well below market. 

Cash flow looks pretty good (about 900/month) but the Cap Rate seems low.

Cap rate: 6%

$59,160 (rent)-$6,800(taxes)- $2,150(ins)- $2,600(Water)- 2001.00(ins) /$770,000(purch price)= 6% CAP RATE (let me know if this calc is off)

Cash Flow: $925.76 per month (calculation below)

 Property: FOURPLEX-8 bedroom, 4 bath. This units has 4- Two (2) bedroom and One (1) bath per unit.

Neighborhood: Zipcode- 02171. Absolute lowest 2 bedroom on the market in this neighborhood is $1500. 

-Current tenant situation- I will inherit these tenants and raise all rent. They have never been late on rent. I'm told they will all stick around for at least a few years. The condo needs a little work and could use updated bathrooms and kitchens. The plan is to gradually raise rent to market value, when the tenants move out I will renovate each unit one by one.

Unit 1: Current $1,180 Will go to $1250 when I buy.- 4 year tenant

Unit 2: Current $1,130 Will go to $1230 when I buy.- 15 year tenant

Unit 3: Current $1,120 Will go to $1220 when I buy.- 6 year tenant

Unit 4: Current $1,130 Will go to $1230 when I buy.- 5 year tenant

-Utilities: All tenants pay their own utilities (Gas, oil, heat...not water)

-Water Bill: $650/Quarterly- Paid by owner (me)- $2600/yr

-Taxes: $1700/Quarterly- $6800/yr

-Home Insurance: $2150/year

-Flood insurance (needed): $2001/year

-New roof 2013

-New hot water heaters

-New electrical

-Mortgage info:

-Purchase price: $770,000 

-20% down: $154,000

-30 year fixed @ 3.708% (**Current level)

-Total mortgage payment (including taxes, ins, etc)= $4,004.24/Month

-Total income from rent= $4,930.00

-Cash flow: $925.76/month