7 Apt Building analysis/advice

[Alyn Shek]

Hi all, I'm new to the forum and I'm also a noob in real estate investing. I came across a deal that I'm interested and would like to seek for some advice. Let's cut to the chase....

7 apartment building in a B+ neighborhood, high traffic residential neighborhood with easy access to transportation, shopping and school. The asking price is 1.3 million with monthly rent roll peaking at 9k monthly. The building is fully occupied with leases of 1 or 2 remaining. I know the area well as i grew up in the area. The building is very well maintained and is in pristine condition. I do not anticipate any repairs will need to be made in the 1st or 2nd year. As tenants renew or move out of their apt, I may do some minor repair/maintenance.

My friend who owns a 5 apartment building and a friend who owns a condo are interested in making this purchase. We will form an LLC and put all properties under the LLC in hope for an easier time to take out a mortgage. The building property taxes are sitting at $12k a year and insurane is in the range of $3-4k. I've read up on the forum sticky before posting but would like some feedback/advice from experienced landlord or investor. I calculated the CAP in the 8% range which is average. Any suggestions? Thanks in advance for any input. Thank You.

[Jon Holdman]

Man I wish I could make that 2% rule go away! It only works for rents around $500.

The 50% rule, OTOH, appears to apply everywhere. It simply gives you an estimate of your vacancy, expenses and capital. So, if you want cash flow, you will ignore it at your peril. Its OK to say "I can't find anything that will cash flow if I consider the true expenses (i.e., apply the 50%) rule". That just means you have to either buy somewhere else or find some other way to make money on the deal.