When would this property make sense?

[Matt Rauer]

Hi everyone.  I'm new to deal analysis so I wanted to give this one a try and see if I'm at least in the right ball park for analyzing deals

• Purchase price - $587k
• Yearly gross income - $42,461 (though for current listed rents it would be $60k)
• Yearly Expenses (50% rule) - $21,230 ($30k w/ listed rent rates)
• pro forma expenses - $24,700
  • Insurance - $2,400
  • Taxes - $12,000
  • Maint / CapEx - $6,300 (15% of rent)
  • Utilities (snow/lawn/water/sewer) - $4,000
• NOI (50% rule) - $21,230
• NOI (pro forma) - $17,761
• P&I w/ 10%down - $30,000 ($2,500/month)

Obviously this is a negative cash flow w/ a low DP mortgage, so this house isn't worth it to me.  But would it be worth it if I got it for $100k less and the rents were at the $60k/year?

Then its $30k NOI w/ $24k in P&I payments = $6k cash flow/year ($125/unit/month).

Am I missing anything else?  

[Matt Rauer]

@Michael Fischbach Flat roof, in Vermont with winter, I can't even imagine!!  This place is definitely out of my price range, but I wanted to use it as an example to make sure I understand the concepts of analyzing a deal.  I'm most likely looking for duplexes in the $250-$300k price range for my first purchase.

@Christopher Phillips Thanks Christopher.  I've chatted with a couple of lenders so I'm getting a better lay of the land as far as financing goes.  I've been told 25% down for an investment property from one lender.  As far as the state of this 4unit, I completely agree that some money would be needed to rehab this place.  When looking at this place, I think the rents are under market rates (probably b/c state of building).  I think this place could conservatively gross $70k/year if the units were updated.  Again, lots of capital to make that happen, on top of a over priced building, so I'm not touching it, but just wanted to chat about this to learn.

@Kevin Siedlecki Thanks Kevin for your feedback. The listing showed $8k/yr for maintenance, so you are right, the 15% of rent was actually lower than what the owner says it is. I'm not sure if that includes CapEx or not, but that would lower the NOI even more. 1 question for you though Kevin, how/why would someone get into a 4 unit like this, as all 4units are in that ~$500k range? They are in for over 6figures, so when would it make sense as an investor (ignoring the state of this building)? Would it need to be $300/unit/month so $14k cashflow yearly?

I completely agree that this is not worth it, hence why its still on the market for almost 3 months when a duplex went in under 3 days this past weekend.  Thanks again for the comments so far, I definitely learned a lot in the past hr or two.