4-plex analysis

[Derek W.]

I have a 4-plex in Hemet, CA. under contract for 100k. It needs around 10k of rehab to really make sparkle. It will rent conservatively for $550 per unit for each of the 1 bed 1 bath units. I am not a great numbers cruncher, cap rate or ROI type guy, so I would love to see this deal put through the BP ringer.
Thank you,
Derek

[Vikram C.]

Derek, here's how I would do it. I am going to assume that the cost works out to $120,000 after rehab and other costs. I will also assume 75% financing (of the total cost) at 7% amortized over 30 years. The numbers are as follows:

Cost = 120,000
Debt = 90,000
Down = 30,000

Gross Scheduled Income = 26,400
Expense (50% rule) = 13,200
NOI = 13,200

Debt Service = $7,200 (rounding it a bit)
New Cash Flow = $6,000

On your 30,000 investment, that's a cash-on-cash return of 20%, which is very decent.

In addition, you also have principal reduction in the first year of about $880, which gives you a first year total return of more than 22%, which is also very good.

Assuming this property is in a location where long term rents can be expected to increase over time, your IRR of this investment will be higher than the first year return.

Please note that all the replies, including mine, are based on some assumptions. You need to make sure the assumptions will hold true for your investment in order to rely on any of these calculations.

P.S. I do not pay too much attention to the CAP rate except as a filtering tool. Once you have a specific property, crunch the numbers for that property and see how it works out.