Originally posted by @Kellie Holly-Wood:
What type of interest rate is the owner giving you?
You want to find out what your annual net operating income is. To do this take the number of units x monthly rent x 12. So if you have 17 units at $500 x 12 months would equal $102,000. Now you need to subtract your annual expenses. A good rule of thumb is 50% of your income. In this case it would be $51,000.
Now, let's say you are getting a 7% interest rate from the owner on a 30 year loan, your monthly payment would be $2661 or $31,932.
So, your net income after debt service would be $19,000.
Your cap rate would be 3.8%. That's your net income divided by the purchase price. But that is all hypothetical on your interest rate.
If he's asking $500,000 try offering a lower price to increase your cap rate. Find out why he wants to sell the property. T
And although they are 100% occupied now, make sure to account for vacancy. Probably between 5-10%.
I hope this helps a little....
Thanks for the reply! I had already figured out the net operating income like that. I have currently asked for more details on the properties. I used $500 as it was a good round number until I figure out how many are single bedroom, 2 bed room, etc as that will effect rent price. I am also waiting to hear back on what his terms are for the note. I definitely had the idea in mind of trying to get a lower purchase price.
I know the occupancy rate will change and wont always be 100% I had already taken that into account. I currently rent in the area where these houses are available and their is an extreme shortage in rental housing and I don't see that changing anytime soon.
My biggest concern with this deal if I do continue to pursue it and the numbers look promising, is coming up with the down payment. I don't have the $100k down payment. Any advice or suggestions on the best way to finance that amount. I'm currently thinking a private investor(s).
