Miami 4-plex analysis!

[Jordan Hamilton]

Hi everyone,

Im a new investor in Miami area. Worked hard over the past year to save up 30k for a residential income property. Preferably 3-4 plex while at the same time studying blogs and every book I could get my hands on regarding residential investing. As some of you know properties are very highly priced in this and the surrounding Miami area (looking on the MLS). My downpayment for this property assuming asking price with FHA is 5% down ($27,450 down) and yearly mortgage plus interest rate of 4.5% would be ($31,711 annually or $2,642 monthly).

A real estate agent brought me a 3-plex that I analyzed and wanted to see if I am doing this correctly because the price I got is WAY less than the listed. Here are the details sent directly from listing agent:

Property Address	Monthly Gross Income	Yearly Gross Income
1297 NE 110 Terr
Unit 1 (1/1)	$ 1,300.00	$ 15,600.00
Unit 2 (2/2)	$ 1,300.00	$ 15,600.00
Unit 3 (2/1)	$ 1,441.00	$ 17,292.00
Total	$ 4,041.00	$ 48,492.00
Monthly Operating Exp	Yearly Operating Exp
Water	$ 86.66	$ 1,039.92
Electricity	$ -	$ -
Property Taxes	$ 271.17	$ 3,254.00
Insurance	$ 562.31	$ 6,747.66
Waste	$ 80.00	$ 960.00
Landscaping	$ 80.00	$ 960.00
Total	$ 1,080.13	$ 12,961.58
Net Operating Inc	$ 2,960.87	$ 35,530.42
Purchase Price	$ 549,000.00
Cap Rate	6.47%

PROPERTY TRADE HISTORY:

> LISTED 5/21/19: $549,000 (+92.6%) *some obvious renovations on interior and exterior*

> SOLD 9/24/2018: 285k (+10%)

With 5% vacancy and 50% expenses this would negatively cash flow (-$1,085 per month), cash on cash return (-3.34%), and debt coverage ratio would be (.97). Which obviously wouldn't work and also considering some say we are at the top of the market in most of south Florida. I went to drive the property and neighborhood today and I have to say this building was the nicest on the block (in the upcoming hood).

After playing around with the numbers I lowered the asking price to 350k, kept expenses at 50% and kept vacancy at 5%. This left me with $3,096 yearly cash flow after debt services. Cap rate at 6.66% and debt coverage ratio at (1.15). I think expenses would be more around the 40% range annually so this could potentially be higher at $7,759 cash flow if thats the case.

So my questions is am I doing this correctly? Should I offer my new asking price or move on? 

I worked hard for my downpayment and sacrificed a lot to make it happen so I don't want to make a mistake here but also don't want to wait forever to buy. LINK TO PROPERTY with pics: https://www.zillow.com/homedetails/1297-NE-110th-Ter-Miami-FL-33161/2088717984_zpid/?

Thank you so much for taking the time to read my post! So thankful for bigger pockets!!

Jordan 

[Ashly B.]

Good lesson in prioritizing. Bottom line is in this scenario you're spending $30k+ on financing every year and losing thousands of dollars in income to interest and PMI. If your goal is cash flow, you're going to need a larger down payment. I understand why someone would be tempted to put down as little as possible but mathematically you don't come out ahead in the the long run - the bank does. I'd strive to put down 20-25%. In this case if you put down 25%, you'd be financing $411,750 and only spending $24,984/yr in debt repayment thus putting an additional $6,727 back in your pocket. Real estate can be a great investment but its not easy or a get rich quick scheme.

What are your long term goals? For me, I've been investing for 7 years. I have 8 years until retirement. So every time I evaluate a property its focused around building equity now (ie quick payoff) so that they will be mortgage free and at maximum cash flow when I'm ready to quit working.