Rental Property Analysis--Is this right?

[Laura C.]

I just completed a "Four square rental property analysis" for a fourplex in my area, and according to my calculations it has a negative cash flow. Am I missing something, or is this property just that "bad" of a deal? I have outlined my analysis below, and would appreciate any insight. Thanks!

Property: Fourplex in Southern California, Inland Empire area; each unit is a 2 bed/1bath, shared laundry, in a B class neighborhood; current rents are 1050-1200; market rent could be closer to 1300/1400.

Background: I used the information and numbers given on Redfin, to make these estimates; plus, I predict a sale price of $700,000 instead of the asking, $899,900. Based on the information they give about "net operating income," this property should cash flow around $2000/mo. (if you add in vacancy, repair, and CapEx, which they do not), but that is not what I'm seeing.

Analysis: (based on current rents)

Total Monthly income = 4700

Rental income = 4400

Laundry = 300

Total Monthly expenses = 6530

Taxes = 660

Insurance = 100

Water/Sewer = 150 

Trash = 70

Electric = 45

Gardner = 70

Vacancy = 215

Repairs = 400

CapEx = 400

Mortgage = 4420 

Cash Flow = -1830

Cash on Cash ROI = -63% (-21960/35000)

Total Investment = 35000

Down Payment (3.5% Owner Occupied) = 25000

Closing Costs = 5000

Rehab = 0

Misc. other = 5000

https://www.redfin.com/CA/Upland/880-N-Redding-Way...

[Sam M.]

If you pay $175K per unit and get $1175 rent per unit, I am not surprised that it does not cash flow after considering financing, insurance, taxes, repairs, vacancies, etc. You can use the 1% rule as a rough guideline (monthly rent must be around 1% of purchase price). Of the units that I own in SoCal, I have a 3-plex that takes in 1.5% of the purchase price and it's profitable. I have other units just under 1% and they are pretty much break-even. The 1% rule is just a rule of thumb. You are doing the right thing by calculating your net income and considering all costs. All I'm saying without going through your numbers in detail is that since the rent is at 0.67% of purchase price, it's not surprising that it doesn't cash flow. What is the cap rate and how does it compare to the going cap-rate in the area?