Two possible deals - which is better?

Question

Hi Everyone,

I'm looking at 2 possible deals, and I'm only going to be able to swing one of them at this time.  Planning buy and hold.  Question is, which one sounds better:

Deal 1:
Bank-owned, 8 units, asking 250K, offered 175K and accepted.
Gross rent = 49K (currently 100% occupied)
Stated expenses = 19K

Deal 2:
4 units, asking 122.5K, offered 112K and accepted,
Gross rent = 27.5K (currently 100% occupied)
Stated expenses = 9.2K

Michael Rossi · Answer

45% is not a conservative figure - it's at the low end of the range.  Even if you use 50%, that's not conservative.  Expenses of 45% to 50% is exactly what you should expect over a large number of units and/or a long period of time.

Mike

Michael Rossi · Answer

Cyrus,

Throughout the United States, operating expenses for residential rentals run 45% to 50% of the gross rents.

Mike

Will Barnard · Answer

Of course this is ONLY generally speaking and are "averages". In some areas of the country, you could experience lower or higher averages. AN experienced investor running a tight ship could also perform better than the next investor decreaseing his/her average expense ratios.

Cyrus W. · Answer

Hi Mike, I'll generally use 45% as a conservative figure. Of course it depends on the property, area, management, etc.

Cyrus W. · Answer

Jon, what is your estimate value for stated expenses?

Josh Green · Answer

dave, are you going to be living in the 4 unit? that rate sounds like a OO rate.

Jeffrey K. · Answer

Who pays heat?

Jon Holdman · Answer

Those stated expenses are way too low.  They may be true, but they're not what you're going to see over the long term.

They're similar deals.  Assuming 7% and 30 years, I get $110/month true cash flow on the 8 unit and $100/month on the fourplex.  However, you may be able to get better financing on the fourplex than the 8 unit.  If you can get decent financing, I'd do the 8 unit just because there's more cash flow.

Two possible deals - which is better?

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