My first purchase is in the works! Just looking for confirmation

[James O'Connor]

Hi bigger pockets family,

I have been searching for a property for a long long time. I finally found one where I've made an offer and the seller accepted (a few days ago) I just want to double check that you guys think this will have positive cash flow. If more info is needed just let me know. Thanks

Multi family that is move in ready. I'm acquiring two tenants and I'm living in unit C. Plan to move out and rent unit C in 1-2 years.

Mortgage: $183,000

down payment: $6,405

Mortgage payment with insurance, and taxes: $1450

property taxes: $3,060yr

home owners insurance:  $1,740yr

Unit A singe bedroom: $850 leased until 9/2018

Unit B single bedroom: $800 leased until 6/2018

Unit C three bedroom: currently leased at $1100 until 1/2018 but I will be moving into that unit.

Landlord pays for heat in all units - seller said it is roughly $500 a month.

tenants pay electric.

Using the bigger pockets calculator I see that while I'm living there it should cover the mortgage / I may have to pay small amount. Once i rent out unit C it looks like it should cash flow roughly $200 per unit.

I am just starting inspections on the house this week.

[Nathan Gesner]

A couple things to consider:

You said, "...seller said it is roughly $500 a month" for heat. Roughly? Seller said? You need to contact the utility company directly and get the real answer rather than relying on seller information.

Income is $1650 and expenses (mortgage and heat) are $1950. That's a $300 deficit which doesn't sound bad since you will be living in one of the units and saving approximately $500 in rent. But what about all the other expenses like on-going maintenance, capital expenditures, vacancies, etc?

Most people will tell you to plan for 10% in repairs, 10% capital expenditures, and 10% vacancy. That's 30% of your annual income. Let's do the math:

Income:   $19,800

Expenses:

     Mortgage:  $17,400

     Heat:           $  6,000

     Vacancy:     $  1,980

     Repairs:      $  1,980

CapEx: $ 1,980

     TOTAL:       $29,340

Using these more complete numbers, the unit you are living in will actually cost you $9,540 annually or $795 monthly.

Will it work? Maybe. But can you handle losing 50% of your income when a tenant fails to pay for two months? Do you have reserves to handle replacing a $3,000 furnace or $7,000 roof?

If it's not too late, I would crunch the numbers harder and see if this is the right deal. If you've already committed, I would seriously consider saving up and preparing for the worst-case scenario.