Fourplex Multifamily Residential Deal in Texas

[Aaron B.]

Hey bigger pockets! I have been an "investor-in-training" for almost a year now, which I am sure could just be a nice way to say that I have not pulled the trigger on buying real estate. Nonetheless, I have been listening to Josh and Brandon on the podcast and reading books whenever I can while evaluating properties along the way.

I found a fourplex with a good chance for positive cash flow. I applied the 50% rule and found that the numbers made sense, and I have been digging for detailed numbers ever since.  I intend to take a look at the property in the near future as I have already contacted a realtor.

I would be extremely grateful if you can spot check my numbers and show me where I might be off-track in my reasoning.  I should preface with the fact that insurance will be the single largest expense since this is on an island on the Gulf Coast.  I should also say that I live about 30-40 minutes from the property and intend to have the property managed for me in as many ways as are practical.

Here are the numbers:

List Price - $129,000

Revenue ($/Mo):

Monthly Rent - $2500

Assumed Average Vacancy - 10% (currently 100% occupied)

Assumed Average Rent - $2250

Expenses ($/Mo):

Homeowners Ins & Home Warranty - $597

Flood Insurance - $67

Property Tax (2.55%) - $274.13

Sewer & Trash - $150

Management Fee (12%) - $300

Landscaping Fees - $100

Financing Costs (5% Interest, 5% Down, 30-yr Fixed) - $747 (PMI=$89)

Total Expenses - $2235

Monthly Cash Flow = $2250 - $2235 = $15/Mo

Yearly Cash Flow = 185

The Cash on Cash Return is pretty low, at about 3%.

With the same numbers as above, managing the property myself to avoid the management fee would yield a 59% CoC. With management still in place and a slightly lower sales price, I'd achieve 7% CoC. I know many people consider that a paltry return; however, I'd consider the experience combined with the passive income worth the effort. Maybe someone could chime in with a suggestion about lowering the asking price to match a specific ROI. The Gross Rent Multiplier is 4.3 at the current list price, if you're into that kind of thing.

I am very excited to hear your feedback!