How much should i be making per month on this house? #'s included

[William J Stratton Jr.]

Hey Guys, 

I just purchased a triplex for 127,000 - 30 year mortgage.

I am trying to figure out what i should be making each month off this house? I heard that if you make 10 or 20% of the amount you rent for per month then you are doing well. Can someone tell me if this is true or if there is other ways in which i should be viewing the profit on this house?  

Here are my numbers:

$127,000 purchase price

$30 year mortgage 

Monthly Expenses:

$1010.30 (mortgage payment of 577.50 and property taxes/homeowners insurance of 346.73)

$150 Water (Calculated using yearly amount) 

$215.41 Heat (calculated using yearly amount) 

$20 Garbage 

= $1395.71

Monthly Income:

$700 (Upstairs)

$800 (Downstairs)

Basement has not been rented out yet - needs updating first (maybe $5,000 to $8,000)

= $1500

Thank you all for the help - this is a great community!

William 

[James C.]

William,

There are as many was to view profit from real estate as there are ways to buy it. How much you make depends on what you are trying to do with the property. Part of the job of owning property is to move it from where it is to where you want it to be. Some folks on BiggerPockets shoot for $100/per door/month "Profit".  

By the most common metric, "monthly profit", you are making about $100/mo. The costs are ~1400 and the income is ~1500, so your "Profit" is $1500 - $1400 or ~100/mo. However, there are problems with this particular calculation. For example, you haven't taken in to account for CAPex, Reserves, or Property Management fees. There are other metrics, IRR (Internal Rate of Return), ROI (Return On Investment), CoC (Cash on Cash return) etc. Let's just stick with the "profit" since the numbers that were presented make that calculation the easiest.

Find and use a good APOD (Annual Property Operating Data) sheet, and use it. As a general comment, make sure you keep good records and review your property performance REGULARLY.

Make sure that you are setting aside reserves for Capital Expenditures (CAPex) 10%, Vacancy Reserves (10%), and Property Management fees (10%). CAPex reserves are for replacing large ticket items like roofs, HVAC etc., Vacancy Reserves are for dealing with vacant units when a tenant moves out, and Property Management is the cost of managing the property, either to pay someone else, or to compensate you for your time and headaches. Do not skimp on the PM!

I've attached The APOD data from CashFlowBookTemplates. Although mortgage payments should not be included for Net Operating Income (NOI) purposes, I've put it in here for illustrative purposes. As you can see, right now, you are operating at a $3100 LOSS per year. Assuming $700/month for the 3rd unit, once you get it running (is the building zoned and permitted for it?), you should be about $2750/year profit. If you go up $25 per unit in rent, that should get you to the "magical" $100 per door.

Another option is to add individual meters to the units, and make the tenants pay the utilities (water/sewer/heat/garbage) which will increase profits by $4625. There is a cost to doing this, so you need to figure your payback.

This is just a quick overview, but hopefully it gives you a direction and some ideas.

Good Luck!

Jim