All Forum Posts by: David Neman

@Kevin Harrison Thanks Kevin. So do you think the 30% operating expenses estimation is too high? When I add in the additional rent from the fourth unit I still come up $156 short after paying for all expenses and the loan. Granted that wouldn't be an issue if the property was sold for under the asking price. Can you give me an example of the known expenses you would estimate? I'm not sure what additional known expenses I would have as the tenants' utilities are billed individually, so I would have lawn and trash.

@Fred Heller Thank you for the response sir. I'm trying to gain an understanding of the costs that would be associated with managing the property. Do you happen to have any idea of what the current owner is paying in operation expenses?

@J Beard Thank you for your response.  

@Fred Heller I agree that the rents could be raised, however I don't know if $1,200 is reasonable for that area given it's a little further out of town. I think it's possible, just seems a little high to me. My family is currently renting a single family house about 10 - 15 miles closer into town for that much. Assuming for now that the rents could be raised to $1,050 per month, do you think these numbers look accurate?

Gross rental income: $3,150 ($1,050 x 3 since we would be living in the fourth)

30% operating expense: -$1,260 ($1,050 x 4 x 30%)

9% vacancy: -$378

garbage pickup: -$100

property taxes: -$675

sewage: -$50

insurance: -$125

The above will leave a NOI of $562 per month

At 3.92% a $374,000 mortgage payment would be $1,768 

All total I would be paying $1,206 to live in the property with 3 tenants paying $1,050 per month. Am I overestimating some of these expenses?

@Sam Shueh Do you think 10% is a more reasonable vacancy estimate?

What other expenses am I leaving out or estimating wrong?

Thanks to any and all who reply it is greatly appreciated.

Thanks Greg. That's kind of what I was thinking as well. If the property was available for $327,000 do you still think the upkeep on something like this would be too expensive? 

Hello, what a great forum this is. I have a question about a property that's available in my area and whether it sounds like a good deal or not.

It's a 5,283 square foot four-plex in southeast Texas. The lot size is 35,000 square feet, and both of the one story duplexes were built in 2004 and have attached two-car garages. They look to be in pretty good shape. The units are directly next to an elementary school, and the property is one of the only multi-family units in the area. Other properties are single family houses and trailers in a fairly rural area. The area is quiet and low crime, and I think will become a little more popular over the next few years due to urban sprawl and some colleges, restaurants, etc being built a few miles down the freeway. Everything is kept up and many of the surrounding houses are ranch style with some acreage and quite expensive - others a little less.

Here are the numbers according to the realtor:

Asking price is $374,000

The unit is fully occupied and generates $3,275 in monthly gross rental income

2015 Taxes were $7,953

2015 Insurance was $1,296

All utilities paid by tenants

I want to live in one of the units, so my gross income from the remaining units would be about $2,456.

I'm budgeting 8% for vacancy of the remaining 3 units

I feel like the asking price of this property is high compared to the amount of rent it brings in, but that's why I am here asking for advice. I've read that operating expenses should be budgeted at 40% of gross monthly rental income, however this seems high to me as well.

Does this seem like an ok deal on the surface or should I be looking for something with a better ratio of rental income to purchase price? I know I'll have to pay for things like trash and landscaping, and I would like to probably increase the insurance coverage a little which will further add to the expenses. What else am I missing?

Thanks a bunch for any replies!