learning to think like an investor

[Derek J.]

I'm looking for my first property. I'd prefer a multi unit building, and I'm looking at listings on Craigslist to practice analyzing the numbers. Can you give me feedback to make sure I'm looking at this right, and if I'm missing anything? I'm in NYC, so RE is expensive. Here's the one I'm looking at:

Three story three family brick & frame Townhouse with finished basement. 3,520 square feet of living space. Each unit renting at $1,850.00 on a month to month basis and the garden level apartment renting for $1,950, with an additional $900 rental income for basement storage totally a gross monthly income of $6,550.00 Cosmetic work advised to increase rental value. Quite block, easy parking.

Lot Area:2504 sf
Lot Frontage: 25' Lot Depth: 100.17
Year Built: 1910 (estimated)
Number of Buildings:1
Number of Floors:3
Gross Floor Area:2,720 sf (estimated)
Residential Units: 3 Total # of Units:3
Land Use:Multi-Family Walk-up Buildings
Landmark Building: No
Historic District: No

it's listing for $975,000. Immediately I applied the 50% rule, and would likely only want to pay 600k for it. at a 4%, 30 year FHA mortgage (throwing numbers around), it would cash flow 410/month, or 4926/year. if I put 3.5% down, that's 21k, or a 23.5% cash on cash. This doesn't take into consideration the repairs, however, so I may need to offer more like 500k for this to be a deal? Thoughts? I must be missing something, right?

[Joel Owens]

People will buy in those types of areas for appreciation mainly.

Some areas cash flow only, some a mix, and others people are buying on appreciation and tax write off only. You have to decide what is most important to you. I do not like the individual 2,3,4 units as you are at the mercy of surrounding investors and how they manage and repair their properties and how they take care of the place.

I like commercial 5 units or more for multifamily. I can control the whole look and feel of the development and tenant base. With commercial multifamily rates will be in the 6's and 75% LTV.

I think in an appreciation driven market you will be very hard pressed to get your offer of 600k accepted as you will be competing against investor buyers who want to break even almost on the property.

You can buy large apartment complexes that yield more cash and value. the question is how much money you have to work with for a down payment will determine what you can or can't go after if you do not want to partner up and own it just for yourself.