Help Analyze Multifamily Deal

[Christopher R.]

Property Info: 30+ years multifamily, fully leased, roof recently replaced, great rental area, HVAC looks very old.

Price: $258,240

Loan Info: 5%, 30 year fixed, 20% down

Cash Invested: $51,648

Monthly Loan Payment: $1,104

Monthly Rent: $2,255

Vacancy: 5%

Taxes: $2,522

Repairs: $1,500

CapEx: $1,800

Insurance: $1,100

Management Fees: 2,057

Total Operating Expenses: $8,779

Net Operating Income: $16,928

Cash Flow: $3,675

Estimated Appreciation Rate: 3%

Estimated Appreciation: 7,747

GRM: 9.5

Cap Rate: 6.6%

ROI w/o appreciation (cash flow before tax + principal reduction + Tax Saved): 13.6%

ROI w/ appreciation: 28.56%

[Simon Campbell]

How accurate are your expense estimates? If these are provided by the owner or their real estate agent, throw them out the window. Honestly, your expenses seem very low. As projected, they only represent 32% of the gross income. Typically, investors find that expenses will amount to 50% of the gross income and that does not include property management or the mortgage.

If the property cannot cash flow at 50% expenses, then walk away. If you can make it better - great. But most cannot and a negative cash flow property is worse than not owning one at all.

If we use your mortgage info, the rent and apply 50% expenses, you are looking at a monthly income after all expenses except taxes of - $14 per month. If we throw in another 10% for the property manager, you are looking at paying out $240 per month. This gives you a cap rate of only 4%! and a cash on cash return of - 5.6%. Run away!

Also, do not factor in assumed appreciation. This is (1) not guaranteed and (2) not accessed until refinanced or sold. Look at it solely as an income producing property.