Request everyone's opinion reference cash flow.

[Vernell D Watson]

Hello Everyone,

I have a quick question. Does it makes sense to buy a multi family home for 180K that will cash flow $1100 a month after the mortgage, taxes and insurance is paid? It's a two unit property and each unit pays $1275. Some of my friends say that I would be acquiring to much depth (180K) for such a small return. I disagree, 1275 x 2 = $2550 x 12 = $30,600 / 180k =  a 17% cap rate roughly. These numbers make sense to me......comments?

[James Galla]

You're not accounting for the NOI (net operating income). NOI includes maintenance, taxes, repairs, management costs, janitorial, etc. Or, you could use an adjusted cap rate and include vacancy, capital expenditures, and PIMI.

(Gross income-NOI)/purchase price = cap rate

(Gross income-adjusted NOI that includes PIMI, capex, and vacancy)/purchase price = adjusted cap rate