Midwest Multi-Family Analysis Assumption Feedback

[Patrick Malinowski]

Looking for feedback on the assumptions I'm using for a buy and hold 4 unit multi-family analysis in the Midwest (Cincinnati). Each of the 4 units rent at $500/mo and are 1BR/1Ba. Separate electrical and heat. Owner would pay for water/sewage and common area electrical. Here are the numbers:

Property Purchased: $80k

Debt Service: $350/mo

Taxes: $275/mo

Gross Scheduled Rent: $2000/mo

Operating Expenses (per month):

- Vacancy: 10% ($200)

- Maintenance: 15% ($300)

- CapEx: 10% ($200)

- Management: 10% ($200)

- Owner Paid Water/Sewage: $150

- Trash Service: $85 (for 3 bins + recycling)

- Insurance: $150

- Owner Paid Electric: $50

Total Operating Expenses: $1610

NOI: $4680

Monthly Cash Flow: $39.05

The neighborhood is at best a C- if not D class neighborhood (high crime, high tenant turnover, low income tenants). Thus my assumption for slightly higher vacancy and maintenance rates. My main question is related to the disconnect I see in with this property vs. the 2% rule and the 50% rule . . . this property pulls in around 2.3% rental income vs. property value and seems to barely cash flow, especially for a multi-family. I know that a lot of people tend to stay away from lower income/high crime neighborhoods due to some of the inherent issues with tenants and high maintenance costs but I've also heard that there's a lot of money to be made in these neighborhoods w/ the right property management team and tenant screening. I would have expected based on the 2.3% rental income that on paper this property would have looked much more appealing vs. what I'm seeing. So what do you guys think - am I being too conservative with my operating cost assumptions (vacancy/maintenance/capex/prop management) or am I correct here and just need to re-evaluate my REI plan?

Thanks for any and all feedback!

-Patrick