Skip to content
×
PRO
Pro Members Get Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
$0
TODAY
$69.00/month when billed monthly.
$32.50/month when billed annually.
7 day free trial. Cancel anytime
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Real Estate Deal Analysis & Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 9 years ago, 05/11/2015

User Stats

183
Posts
155
Votes
Zach Mitchell
  • Investor
  • Orlando, FL
155
Votes |
183
Posts

First Rental - 4% Rule Quick Opinions Needed!!

Zach Mitchell
  • Investor
  • Orlando, FL
Posted

I am looking for some quick opinions on the deal below. Can I really go wrong with this?? I have submitted the contract and just waiting on the seller to sign but we have already agreed verbally. 

I have been looking to buy my first rental property for a long time and came across a listing for two duplexes for $35,000. You are reading that correctly, 4 units, $8,750 each. Rental rates are at $350/unit ($1,400 gross or 4%), with taxes around $1,100 annually and insurance around $1,000 (quoted by seller, not sure if accurate). There is one tenant who has been there for about 3 years who takes care of the yards for $50/mo, so taking out fixed expenses the net is about $1,175. After another 10% for management and a vacancy factor of 10%, even though the property has not had a vacant unit for over 5 years, and net rents are around $895. 

To me this looks like an NOI of around $10,740 indicating a cap rate of about 31%. I'm sure you're wanting to know how this is possible.... well, they are in the hood. Low income area, probably crime-ridden. Not stereotyping here either, I pulled the street on crimereports.com and there are literally break-ins on the same street within the last week. Should this stop me though? I'll never go to the properties unless a tenant moves out since they are about an hour away but I really don't see any need to. Most are long-term tenants and the seller said he has only had a few turnovers over the six years he has owned it.

In addition, both duplexes were re-plumbed (new supply lines), rewired, and had new windows put in, all in 2008. All separately metered and tenant pays own utilities. They both have metal roofs (not sure of age, seller guessed 20 years old) and there is no central a/c, just window units, and they are owned by the tenants, meaning no responsibility on my end for those. 

Lastly, I negotiated 70% seller financing on the deal so I am only going to be out of pocket $10,000! 5 year term, fixed at 8% so payments are about $500/mo. With net rents of $895 I would be cash flowing $400/mo. ($100/unit) with only $10,000 out of pocket.  

Can someone please snap me back into reality here. Where are the negatives to a deal like this?

Loading replies...