(Not counting some capex expenditures to make the house more tenant-friendly...like adding a back door that doesn't require going through the standup crawlspace.

Thus, the formula is income minus expenses minus debt service minus capital expenditures for the interim cash flows. 

.$37,800 - $26,000 = $11,800 Expenses$11,800 / $37,800 = 31.22% OER.This Operating Expense Ratio suggests that your APOD does not include things like Repairs & Maintenance, Capital Expenditures (aka Replacement Reserves), Vacancy & Credit Loss, Management, maybe even some utilities?). 

I would talk with the association about past capital expenditures and what they anticipate for future capital expenditures on the building.  

Except  if you are trying to determine when to implement a Capital Expenditure (i.e. replace the roof) in order to start claiming the depreciation.Cash Flow is the result of your rental income received less all expenses during a given period.  

@charles  you're doing the number correctly, the 50% rule is more of a guideline to let you know that you need to expect capital expenditures (HVAC/Roof/Foundation) in the future. so if you plan to save that money ahead of time, you have it when you need it. 

If you have a conservative rent target and include things like capital expenditures, taxes, etc. you should be in great shape.Warning, being this highly leveraged means that it will be more difficult to refinance unless you are buying at a steep discount.Tip, obviously you can record the private loan as a second mortgage to make the private money lender more comfortable.

I am considering buying a 4 Plex near me and am hoping someone with more experience will look over my numbers and comment on it.4 Units all 2 Bed 1 Bath600/Month Per Bedroom28800 Gross Rent2880  Vacancy 10%2590 Management 10% (I'll plan on managing myself, but want to put the number in)2600 Water/Sewer/Trash (Water is currently included in rent)710 Tax600 Insurance (seems a little low to me, but that is what the owner is currently paying)1440 Capital Expenditures  5%1440 Maintenance 5%12260 Total Expenses16540 NOI7.5 % Cap Rate25% Down $55000 30 Year loan @ 4.5% $836/month $10032 Debt Service6508 Income per year 542/month 11.8% return on my investment of $55000Does anyone think this building is worth buying?  

Thomas S.My monthly expenses are $627.33Here's how I broke it down:Water & Sewer: $35Garbage: $35Monthly Insurance: $49Vacancy: 5%Repairs and Maintenance: 5%Capital Expenditures: 10%Property Mangement Fees: 10%In my calculation I also put in $2,500 on property taxes and $5k for initial repairs (mostly cosmetic - had seller take care of all the serious ones before hand)  What expenses do you feel I missed out on (or way underestimate on) ?

Hey,already learned for several months and analyzed some real deals.Still in my learning phase, after reading a lot logs and talked with different investors/brokers,just would like to discuss/clarify some important points for underwriting apartment buildings (> 6 units, income properties).First way to underwriting apartment building is based on the actual/verified seller financial datas (income/expense) and market prevailing cap rates to get reasonable market value, then based on the physical (rehab costs) condition to get the offer price.Another way is my prefer and most value-based methodology.First of all, based on the market research to come to your own expense (property manger expense, insurances,taxes,cap expenditure sand utilities) and based on the market condition to come at rents or other income numbers, to get your own NOI and cash flow.Then base on the value-play plan (financial terms and holding period) and (most importantly) IRR target for the property.Use the expected cash flow,IRR,holding period and expected exit price to get the offer price.Just wonder which way is better from the value-add investing perspective?