I am looking for something on the buy side in the neighborhood of 60 - 65% of the gross.

That rule of thumb simply states that expenses, capital and vacancy will eat 50% of the gross scheduled market rent.

As a family of five, their 2011 tax return shows about $14,000 gross income for the year.

For those of us who are passive investors 2013 brings new federal gross rent tax of 3.58%, thanks to Obmacare.

There is a rule of thumb that says expenses, capital, and vacancy will eat 50% of the gross scheduled rent.

You'd probably gross a similar amount, perhaps more depending on location.

Annual Projected Operating Data- APODEstimates cost, gross income, gross operating income, net income, cash on cash, cap rate, gross rent multiplier, etc. basically one sheet with all projected data.

At vacancy rate of 8.3%, 1.5 yr average tenancy and $600 avg make-ready costs, $350/yr/unit for replacement reserves, 5% for general maintenance/grounds, it appears you will only net 30% of the gross potential rent.This results in a cap rate of just 5.9%, and barely break-even on cash flow (it's irrelevant that you'll "earn" the PM fee for purposes of this analysis, as when you go to re-sell it your buyer will likely want to see true PM fees included, which include 8% mgmt and 1/2 mth for lease-up).Plus it's an older building, so maintenance may be higher than my assumption.

Cap rate on those is 12 +, so using more usual expenses being 60% of gross your annual gross is $54,000 and annual net is $21,600.

THE DEAL:Nice neighborhood in Chicago.Sell price 305,000Bank owned 3 flat with garden.3/1 and 1/1Will use FHA and put between 3.5 - 5% DP.Annual Gross income = 43,200If I use the 50% rule I am at a 7% Cap rate by my math.I will update the property ( it needs it - cosmetics - and is vacant now ) using some instant equity that will be built into the deal - will appraise at 360,000 as is - put 35k using that equity and increasing rents by 10 - 12%.Trying to close by 12/20.