Landlord buying criteria

[Brian L.]

Currently talking to a seller of a 4 family in NJ. She's motivated. The house ARV is 480k. Rent roll is $5600/month. The property is in very good condition and had updated kitchens and baths 4 years ago. It needs paint, carpet and a little sprucing up. Lets assume 20k in repairs. She has been offered 345k already (71% ARV).

What should this deal be worth to a landlord buyer? Obviously, a rehabber wouldn't buy it. Are landlords generally paying 85% ARV?

[Jon Holdman]

Landlords often want a price that will generate real cash flow. Her price only generates a 4.5% cash on cash return:

Purchase price: $480,000
Rehab cost: $20,000
Rent: $5,600
Exp, vacancy, capital %: 50%
Loan rate: 4.50%
Loan term: 20
Down payment %: 25.00%
Down payment: $120,000
Loan amount: $360,000
P&I payment: $2,277.54
Expenses, vacancy, capital: $2,800
Net Operating Income: $2,800
monthly cash flow: $522.46
annual cash flow: $6,269.55
total investment: $140,000
Cash on cash return: 4.48%
Cap Rate 7.00%
I think you're proposing a price of $413K. Better.

Purchase price: $413,000
Rehab cost: $20,000
Rent: $5,600
Exp, vacancy, capital %: 50%
Loan rate: 4.50%
Loan term: 20
Down payment %: 25.00%
Down payment: $103,250
Loan amount: $309,750
P&I payment: $1,959.63
Expenses, vacancy, capital: $2,800
Net Operating Income: $2,800
monthly cash flow: $840.37
annual cash flow: $10,084.42
total investment: $123,250
Cash on cash return: 8.18%
Cap Rate 8.14%

$345K makes this a good deal:

Purchase price: $345,000
Rehab cost: $20,000
Rent: $5,600
Exp, vacancy, capital %: 50%
Loan rate: 4.50%
Loan term: 20
Down payment %: 25.00%
Down payment: $86,250
Loan amount: $258,750
P&I payment: $1,636.98
Expenses, vacancy, capital: $2,800
Net Operating Income: $2,800
monthly cash flow: $1,163.02
annual cash flow: $13,956.24
total investment: $106,250
Cash on cash return: 13.14%
Cap Rate 9.74%