Good afternoon ya'll and Go Cardinals! Please let me know what you think about this deal. This is my first investment purchase and I would be living in it. I'm running my numbers without me living in it. I would love feedback on the rules of thumb/how I came up with the numbers more than anything!
Ya'll rock thanks!
4 Units Scottsdale, Arizona
Gross Reported Rents - $2,333.33/month or $28,000/year
Water/Sewer - $218.34/month or $2620/year (According to the 2015 Municipal Budget Office, the average Water/Wastewater for the median single-family household was $655. I multiplied $655 x 4 units)
Property Taxes - $100/month or $1200/year (This is from the MLS. It's actually $97/month for 2015 but I figured it would be good to assume some increase)
Electric - $0 (Individually metered)
Garbage - $20/month or $240/year (According to the 2015 Municipal Budget Office, the average once per week collection service for the median single-family household was $240. I'm assuming a 4-plex would have one trash bin)
Property Management - $233.33/month or $2,800/year (10% of gross rents)
Insurance - $115/month or $1380/year (This is my least confident estimation. I'm basing this on evaluating other 4-plexes in Tempe that reported on average $100/month insurance. I put $115 to TRY and be conservative)
HOA - $0
Vacancy - $233.33/month or $2,800/year (10%. It's in a good rental area and has consistently stayed rented)
Repairs - $183.33/month or $2,200/year (I'v run across many rules for estimating this expense. I decided to use one I found on here from a member that estimates $400-$600/unit/year depending on age and condition. This property was built in 1958. Two of the units have been renovated. It's in decent condition from my eye test, which isn't worth much. I decided to estimate $550/unit/year X 4 Units)
CapEx- $116.67/month or $1400/year (Same as repairs. Many rules. The same member of BP who recommended the repair rule stated $250-$350/unit/year. I decided to estimate $350/unit/year X 4 Units)
Total Expenses (without Debt Service) = $986.77/month or 11,841.24/year
Total Revenue (less vacancies) = $2100/month or $25,200/year
NOI = $13,358.76
The asking price is $284,000 which makes the cap rate 4.7% without Debt Service. I understand this to be extremely poor which is interesting to me because this deal is from a wholesaler (though I understand their numbers should never be trusted).
But still, unless I have grossly overestimated expenses this deal would be horrible. Let alone once I put in debt service. I would certainly be losing money.
The 50% rule gives an NOI of $13,998 or a 4.93% cap.
Speaking of Debt Service, and sort of a side question, I can't for the life of me understand how people make a living with buy and hold rentals unless they have 100 properties! Even on the good deals i'm analyzing, after putting 20% percent down I'm seeing $1200-$2400 Net Income/year per property. Need a lot of properties to retire from buy and holds according to that. When I research this on the internet I see people saying they make 5,6,7k per property a year. Unless their expenses are closer to 20% as opposed to the 50% rule I don't see how this is possible. I really hope i'm overestimating expenses and underestimating returns.
Long post thanks in advance!
