[Calc Review] Help me analyze this deal

[Aaron Kelly]

Hello, I had been search for a fourplex around within Austin and found one. However, when I ran a calculation based on BP's rental property calculation, the results show so massively negative cashflow due to high mortgage amount, the interest at 6.5%, for FHA loan. According to Zillow's estimated data, it is about a $4,000 total expensive using a base 25% downpayment. With rental calculation, it tells me that the total cashflow is about negative $2,000 per monthly. Since the rental income is not detail in Zillow, I used a rent estimator from google and they tells me the rental is about $2,600 from all 4 units. I am bit confused.
So, I would like to expands my limited experience and with calculation by ask here what is correct calculation process and after result is show, what will be ideal moves about this fourplex? The property is attached below.

Address:

6420 S 1st St, Austin, TX 78745

https://www.zillow.com/homedet...

View report

*This link comes directly from our calculators, based on information input by the member who posted.

[Clayton Plummer]

Aaron - 

Not all deals are good deals, this one looks like the price is too high.

To assume you're using the 25% down payment version:

If you look at Realtor.com's listing:https://www.realtor.com/reales... you get a better description of the property, including rent roll.  810 and 820 for the two 1beds currently, 1030 and 940 for the two 2beds currently.  Those are all WAY below market rent.

Market rent in Austin looks like it's about $1100 for each of the 1beds on the low end and $1350 for the 2beds on the low end.  Raising the rent to current market value would be your biggest challenge, especially if the tenets come with the building and they've been there for a while.   Low market rents put you at $4900 per month.  If you bump the 1/1 up to $1150, you hit $5000/mo.

I used the BP rent calculator to get current market rent numbers:https://www.biggerpockets.com/... I switched the beds/baths between 1/1 and 2/1 to see other offerings in the area.

This gets into the ethical side of landlording.  Yes, you're in the business of making money, but at the same time, these people might not be able to swing $1150/mo and $1350/mo rent.  Maybe a more humanitarian approach is like $900 for the 1/1's and $1100 for the 2/1's.  That puts you at $4000/mo.  This way you're helping close that cashflow gap and still maintaining your renters while the entire country is dealing with the current economy and price jumps on everything.

All that said - It's still a bad deal using 25% down at the full asking price - according to the numbers I used on my calculator: $665,000 asking, 25% down,7% APR and 30 year note, 2% closing costs, $880/mo taxes, $500/mo insurance, 7% for repairs, 7% vacancy, 7% CapEx, and 10% for management.

Good luck.  This was fun.  Thank you for the exercise.