I found a deal that cash flows 8,600 a month

Multi-Family and Apartment Investing
7yFollow

I found a deal that cash flows 8,600 a month

Justin Lee Taylor
Investor · Jonesboro, AR · Member since 2018 · 118 posts · 35 votes

The guy is selling 20 units for 700,000. It isn’t an actual 20-plex but he is selling 5 building all together that consist of 20 units. It cash flows 8,600 a month right now with only 2 vacancies. The properties are being rented 500-650 a month on them. The cash flow numbers work but is there more to it? Is that all I need to look at

5Reply
25 views

Most Popular Reply

Sam Grooms
Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
7y

$1,750/unit/year of operating expenses? I doubt it. Operating expenses of 25% of income is a red flag, especially with such low rents. 

Also, I think you're confusing cash flow with net operating income (unless you're paying all cash?). 

5Reply
See this reply in the discussion

19 Replies

Jump to latestLatest
  • Michael DangPro Member
    Rental Property Investor · Houston, TX · Member since 2015 · 454 posts · 273 votes
    7y

    @Justin Lee Taylor. A few things to get or determine.

    What are the submarket rents?

    What's the upside?

    How much CapEx is needed to cure deferred maintenance and improve the asset to force appreciation?

    What are your local laws and regulations of purchasing a multifamily deal? Fire Inspection, structural inspection, etc.

    Who is going to manage the asset after takeover?

    Have you share your underwriting with your lender or vice versa with your lender?

    Have you gotten quotes for insurance and other contract services?

    Just a few things. I'm sure there are more.

    3Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y

    $1,750/unit/year of operating expenses? I doubt it. Operating expenses of 25% of income is a red flag, especially with such low rents. 

    Also, I think you're confusing cash flow with net operating income (unless you're paying all cash?). 

    5Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    @Justin Lee Taylor It does Not “cash flow” $8600/mo. The net income is not even that high. Sounds like your number is just gross rents minus taxes and insurance?  There are a lot more expenses. 

    Cash Flow= total income minus all expenses minus mortgage payment. 

    4Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    @Justin Lee Taylor you should consult a local investor or partner with someone. Based on the few items you have mentioned this does not cashflow 8,600, no where near that. Be careful and do your due diligence with someone that can hold your hand along the way in your local area.

    Best of luck.

    Compass5122 Reviews
    WebsiteView Page
    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    @Justin Lee Taylor  Have you accounted for mortgage, property taxes, repairs and any utilities (assuming they aren't paid for directly by the tenants)?

    0Reply
  • Shawn Rasmussen
    Revillo, SD · Member since 2016 · 33 posts · 14 votes
    7y

    @Justin Lee Taylor

    Cash flow is what's left over after all expenses. You'll still need to calculate:

    Here are some estimates.

    P&I (Principle & Interest). $2818/mo with 25%

    down at 5.5% over 30 years. You might be able to get the seller yo finance the deal with no or low down payment.

    Property Taxes: 1.25% of property value. $729/mo

    Insurance: .5-1% of property value. $291-$582/mo

    PM: Property Managemen. 8% of rents: $688/mo unless you do this yourself.

    CapEx: Capital Expenditures. Savings for future property expenses. 5-10% of rents. $430-$860/mo

    Vacancy: 5-10% of rents. $430-860/mo

    Lawncare/Snow Removal: ?

    Utilites: ?

    If the rents are low for the area and you can raise them without increasing vacancy, then it should be a pretty good deal. Also look for major repairs that might need to be done soon and factor those into the purchase price.

    Insurance: .5-1% of property value. $291-$582/m

    Property Management: 8% of rents if not doing it yourself. $688/mo

    1Reply
  • Carlos Tavares
    Real Estate Professional · Pawtucket, RI · Member since 2016 · 133 posts · 79 votes
    7y

    @Justin Lee Taylor

    Greetings, do you due diligence as others said the cash flow isn’t right. One of my favorite lines is on a rap song which sums it perfectly “men lie women lie, numbers don’t”. Even your base mortgage payments after 25% down exceeds $3,500 ....

    1Reply
  • Josiah Crocker
    Member since 2019 · 13 posts · 5 votes
    7y

    @Justin Lee Taylor hey Justin, good on you for sniffing out potential deals. It might benefit you and everyone else if you laid out your numbers more openly here so we can see what you are accounting for and maybe what you are forgetting about. I'm coming up with cash flow that is about half of what you stated (which is still great! 20%+ COC annual return). Let us know how you came to $8600 :)

    0Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    7y
    Originally posted by @Shawn Rasmussen:

    @Justin Lee Taylor

    Cash flow is what's left over after all expenses. You'll still need to calculate:

    Here are some estimates.

    P&I (Principle & Interest). $2818/mo with 25%

    down at 5.5% over 30 years. You might be able to get the seller yo finance the deal with no or low down payment.

    Property Taxes: 1.25% of property value. $729/mo

    Insurance: .5-1% of property value. $291-$582/mo

    PM: Property Managemen. 8% of rents: $688/mo unless you do this yourself.

    CapEx: Capital Expenditures. Savings for future property expenses. 5-10% of rents. $430-$860/mo

    Vacancy: 5-10% of rents. $430-860/mo

    Lawncare/Snow Removal: ?

    Utilites: ?

    If the rents are low for the area and you can raise them without increasing vacancy, then it should be a pretty good deal. Also look for major repairs that might need to be done soon and factor those into the purchase price.

    Insurance: .5-1% of property value. $291-$582/m

    Property Management: 8% of rents if not doing it yourself. $688/mo

    How can you calculate taxes and insurance without knowing the location?

    0Reply
  • Justin Lee Taylor
    OP
    Investor · Jonesboro, AR · Member since 2018 · 118 posts · 35 votes
    7y

    @Josiah Crocker well I just found out the property sold real quick so it’s not there anymore. It was on the market for less than a day! But I really appreciate the advice! Next time I see a deal I will definitely lay out the numbers more openly and I love seeing everyone willing to help

    1Reply
  • Josiah Crocker
    Member since 2019 · 13 posts · 5 votes
    7y

    @Justin Lee Taylor even as an exercise, post them here so when your next deal comes you’ll know your numbers better! Practice makes perfect

    2Reply
  • Justin Lee Taylor
    OP
    Investor · Jonesboro, AR · Member since 2018 · 118 posts · 35 votes
    7y

    @Josiah Crocker IMG_1296.jpg

    0Reply
  • Justin Lee Taylor
    OP
    Investor · Jonesboro, AR · Member since 2018 · 118 posts · 35 votes
    7y

    @Justin Lee Taylor I’m not near the sheet of paper that had all the numbers. I’ll have it tomorrow. I’ll send it in after lunch! I’m excited to learn

    0Reply
  • Kevin Miller
    Realtor · Columbus, OH · Member since 2019 · 83 posts · 62 votes
    7y

    @Michael Dang what do you mean share the underwriting with the lender? Thanks

    0Reply
  • Shawn Rasmussen
    Revillo, SD · Member since 2016 · 33 posts · 14 votes
    7y

    @Sam Grooms

    Just estimates to help him understand all of the monthly costs.

    1Reply
  • Dell J.
    Member since 2010 · 210 posts · 158 votes
    7y
    what is the song?
    Originally posted by @Carlos Tavares:

    @Justin Lee Taylor

    Greetings, do you due diligence as others said the cash flow isn’t right. One of my favorite lines is on a rap song which sums it perfectly “men lie women lie, numbers don’t”. Even your base mortgage payments after 25% down exceeds $3,500 ....

    0Reply
  • Anthony Woods
    Rental Property Investor · Corona, CA · Member since 2015 · 46 posts · 8 votes
    7y

    @Justin Lee Taylor

    So 8600/mo cash flow after all expenses and debt service. Seems too good

    1Reply
  • Bria Johnson
    Specialist · Member since 2018 · 124 posts · 64 votes
    7y

    @Justin Lee Taylor

    In your numbers did you consider

    - expenditures

    -P.I.T.I

    - monthly repairs

    0Reply
  • Justin Lee Taylor
    OP
    Investor · Jonesboro, AR · Member since 2018 · 118 posts · 35 votes
    7y

    @Josiah Crocker I just finished reading the book the ABC’s of real estate investing! It helped out so much!! I understand these numbers so much better

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free