First Deal: How are the numbers

[Lisa Ryan]

Hi,

I'm looking at a 3 unit near a college in central PA.

Units rent for 600, 650 & 700 ($1,950 per month total)

Owner pays for heat (approx $4,000/yr) and water (approx $1,800/yr)

Price: $115,000, Taxes $3,000, Insurance $1,200

If it weren't for having to pay the heat I think it sounds decent but with the extra 4k a year I'm not sure.

Thanks of your help!

[Roy N.]

@Lisa Ryan

The information you provide is a little thin, but let's have a look w/ a few small assumptions:

Scheduled rent: $1,950.00/month $23,400.00/yr

Vacancy allowance (10%): $195.00/month $2,340.00/yr

{Effective} Gross Revenue: $1,755.00/month $21,060.00/yr

Expenses:

Taxes: $250.00/month $3,000.00/yr

Insurance: $100.00/month $1,200.00/yr

Heat: $333.33/month $4,000.00/yr

Water/Sewer: $150.00/month $1,800.00/yr

Maintenance/CAPEx (10%): $175.00/month $2,100.00/yr

Property Management(7-10%): $150.00/month $1,800.00/yr

Garbage: $50.00/month $600.00/yr

Landscaping/Snow removal: $50.00/month $600.00/yr

-----------------------------------------------------------------------------------

Total: $1,258.33/month $15,100.00/yr

NOI: $496.67/month $5,960.00/yr

This gives you a CAP rate of 5.2% at the stated price.

It leaves little room for debt service.

Even if the heat were in the hands of the tenants, your NOI would only be 9,960.00/yr (< 50% of gross revenue) and the CAP rate would be 8.7%.

On a quadraplex, I would be looking for a CAP in the 10-13% range.

You gut is right, this does not work as it is.