Anyone willing to "grade" my work? Willing to take criticism :)

[Dustin Beam]

Hey everybody,

I'm looking at a "deal" that could be my first, so there's a lot of caution on my end. I would assume most of you know the feeling. I'm a believer in the old saying "the devil is in the details" so I'm trying to analyze this property thoroughly and correctly. So, I'll try to be brief and will truly appreciate any feedback you're willing to give. 

Background: Two 4plex buildings.

Cost: Shooting for $250k

Rent: $500/unit/mo, $4000 total

Mortgage only: $890/mo

2% rule (of thumb): Fail

50% rule (of thumb): Pass for me

Detailed Analysis

Expenses:

Vacancy (10%):                          $400/mo

Taxes (verified):                          $216/mo

Insurance (est.):                          $175/mo

Mortgage:                                   $890/mo

Future management (10% est):  $400/mo

Cap X***:                                     $190/mo

Miscellaneous:                            $ X

Total:                                           $ 2271 + X

*** - I used this site for average life of components and Home depot for prices. Included components for CapX were water heaters, roof, furnaces, refrigerators, range/ovens, and window unit ACs.

OK, So if those estimates are accurate, the miscellaneous amount could total as much as $925/mo and I'd still make $800 month in cash flow. Although those rent numbers may indicate this in a shady area, it really isn't, yet those numbers resemble "bad area numbers" from the times I've analyzed them. So what do you think, am I missing anything critical?

Thanks,

Dustin

[Joel Owens]

2 - 4 plex buildings

Look at crime for the area on a site like crimemapping etc. Look for violent vs non-violent crimes for severity and frequency. If the whole area is infested then it will not matter what you do for fixing up your buildings. Additionally how many quads are on this street?

Research WHO the owners are and what they owe on the properties. Some will be slum lords and devalue your property and make it harder to rent and have rent growth in the future. So when you do not own a larger self enclosed complex where you control the whole development this becomes more critical what type of other owners are around you.

Make sure your 500 rent estimate is a real number that is middle market. You do not want rents too low that there is a long waiting list. You do not want too high as when a new product hits the market you will have excess turnover and vacancy. Middle market rent your place stays mostly full and even with annual rent increases you are still one of the better deals in town. As long as the property is taken care of tenants will like to stay.

Does landlord pay water or heat?

If so take 60% off of gross expected rents. If not take off 50%.

Verify the 500  a month isn't giving free rent credit which would take the effective rent down. 

Confirm insurance on older buildings as that can get really high if you have original plumbing and electrical etc. that has not been updated. Additionally check water to see if it has gone up much the past few years  or not. During the last downturn most cities and counties waived increases just to keep everything going.

Now that economies are healthier in a lot of places these governments are pushing utility increases on what they charge plus also increasing and re-assessing property taxes.