Landlord Pays Utilities

[Andrew L.]

I'm looking at this deal where the gas, electricity, and water is paid by the landlord. The rents are above market because of this. I was wondering when you are faced with this situation on a smaller multi-family property (3-unit) what do you use for the expense ratio? I know everyone here assumes automatically 50% of gross income, but that assumes that the renters pay for utilities. Parameters are below. I ran a scenario using a 60% expense factor and it appears to remain a darn good deal. Let me know what you guys think.

Purchase Price: $99,900

Unit 1 Rent: 950 (3/3)

Unit 2 Rent: 800 (2/1)

Unit 3 Rent: 700 (1/1)

Financing Parameters: 20% down @6% 20 year ammo

My numbers indicate using a 60% expense ratio, that this property's NOI will yield a COC of 24.5% which is pretty stout. The property is in a C+ class condition. The seller does not have a P&L on this property and in fact, I have found that most owners of these smaller multi-family properties do not track income and expenses despite having to report this to Uncle Sam. (An anomaly I still haven't figured out..)