Multi Family Numbers - Do they work?

[John Romero]

Hi Everyone! I'm trying to run numbers on a potential duplex property i've been considering in NJ. (One unit is a 2br/1bath that can bring in $1200, the other is a 4br, 2bath that can bring in $2000.)

[i]Purchase price: $300k (Can be purchased for this amount)
Appraisal price: $470k (Currently on Zillow)
Sold in '07 for: $500k (From NJ tax information)
Current comps: $450-475k
Monthly Rent: $3200
Monthly Mortgage: $2400 (Including all taxes/insurance)[/i]

I've been doing some homework on BP regarding ratios and percentages. Trying to learn but still confused. Do the ratios take into consideration appreciation? The formulas i've been running are specifically how rent should be 2% of the purchase price. In this case, it's not; it's 1%. Expenses should also be factored in at 50% of the rent.

Ideally (from what i've been reading)
2% of 300k = $6k/month (what the rent SHOULD be)
50% of 6k/month = $3k/month (what the expenses SHOULD be)

So...

If expenses are $3000, and my mortgage is $2400; the total monthly carrying cost would be $5400.

Factor in rent of $3200/month and you'd be left with a loss on this property of $2200/month.

This can't be correct, is it? It seemed good, the mortgage was at least $800 less than rent every month, plus the property is in a good area, appraising for $175k more than the possible purchase price.

Am I missing something important in my math? Any tips to help out?

Thanks so much.

[Jon Holdman]

I can tell from just the purchase price and the rents this is a bad deal. $300K for $3200 in rent just won't work.

That said, the 2% rule doesn't work for $1200 and $2000 rents, either.

Rent: $3200
Expenses: $1600
Payment: $1798 ($300K, 6%, 30 years)
Monthly Loss: $198

You cannot figure the rent from the price. You have to figure the rent from the market, then work out the price. For this place to cash flow $200 a month, you can pay no more than about $230-235K.

None of this considers appreciation, which is purely a crap shoot.