Boston refuses to cash flow

[Rob Ferdinand]

Hey, everybody,

I'm not quite sure if there are problems with my calcs, or if everything I find on market are simply bad deals. Please let me know if I'm doing anything wrong here? Here's the details...

I plan to use FHA loan on a multi. Initially, I will house hack, but I'm running numbers to see what it will do once I leave and it becomes solely an income property. I'm analyzing North shore homes, 2 & 3 families, on the outskirts of the city. I've worked out some kinks and THINK I am as accurate as I can get.

I'm using list prices from MLS and estimating rents from craigslist. I'm including closing costs into the mortgage ($7,500 generically, is there a good percentage to use?). 5% (each) for vacancies, repairs, and cap-ex. 10% for management. Local utilities have been estimated, and of course, PITI and PMI using a mortgage calculator.

With 2 families -($500k-$525k range)
What I'm finding is that they refuse to cash flow with 5% down. At 20% down they will cash flow but the COC ROI is under 4%, and also falls shy of the 1% rule. (I've also included a 1% "clean-up" cost for minor repairs/paint as a one-time cash expense, into the COC ROI)

With 3 families -($600k range)
At 5% down payment, they seem to cash flow nicely, over $200/door, although the 50% rule is pretty negative and I just meet the 1% rule. In this scenario, the COC ROI is suspiciously inflated at over 20%. (Also included the 1% clean-up fee).

3 fam- ($650k range)
The numbers are much more realistic. Cashflow just over $100/door. COC ROI 11%, but 50% rule is WAY negative (About $1k) and falls under 1% rule.

I'm aware the 20% vs. 5% down payment makes a world of difference, plus saving the PMI. I can't afford 20% on a 3 family, and the 20% on 2-family scenario just seems off to me at 4% COC ROI.

So...Is anything glaringly off with my numbers, or is this expected for the current market?

Thanks for reading!