Help with numbers on first multi-family property

[Luke Franklin]

I’m considering buying a multi-family unit as my first investment property. I will be living in one of the units initially, but I’m running the numbers as if the property will be a full rental property. I don’t plan on living there more than 1-2 years max and my analysis is for the long term. I need help double checking my analysis. Here’s what I have so far…

Asking Price: $140,000. 4 Units- $550 per unit (3 of them are currently rented, I’d live in the 4th). Monthly Gross Rental Income: $2200

This would be an FHA loan. 3.5% down ($4900). Interest Rate of 4.25%

2% Rule: Clearly, not 2%. It’s 1.54%. I’ve been looking for several months and nothing in my price range gets 2%. The only way to hit 2% is for large apartment complexes in some run down parts of town. I’m relatively happy with 1.54%.

50% Rule: $2200 gross would mean $1100 for NOI. Here's the $1100 in monthly expenses.

• $151 MIP (PMI)
• $210 taxes (it’s about $2500 annual)
• $66 insurance
• $673 vacancy, repairs, utilities (does this seem too low?)

Cash Flow: According to the 50% rule I'm at $1100 NOI. NOI ($1100) - Principle and Interest ($676) = $424 monthly. That's $106 per door per month. Annual Cash Flow = $5088

Cap Rate: Annual NOI / Property Price

Annual NOI ($13,200) / 140,000 = Cap Rate (9.4%)

Cash on Cash Return: This is very high because I’m only putting 3.5% down. Cash Flow ($5088) / Down Payment ($4900) = 103.8%. (Am I doing this right?)

Any thoughts or comments? I'm concerned that $1100 for NOI is too high (ie my expenses will be higher than I anticipate). Thanks!