Duplexes And Triplexes Cash Flow
I am in the process of looking into these dwellings and wanted to know if anybody could tell me what a good deal is regarding the cash flow from these units.
For example; a duplex fully rented with expenses for maint at $500.00 a year, Tenants pay all utilities and take care of lawn. rent is at market value of $700 a month. So $1400.00 a month in rents. Now mortgage would be 140.000.00 at 6.25% for 30yr fixed is $862.00 a month, add Taxes of $1860.00 a year and Ins of $950.00 a year would make the total monthly payment I have to make at $1137.00. $1400.00 minus $1137.00 is a whopping $263 a month positive cash flow if nothing goes wrong.
What is the average monthly PCF that you need to see from these types of units?
Thank you
I shoot for $150 per unit so $300 for a duplex. I will say that I would not buy something for 140k that's monthly income is 1400. You need to factor in 5-20% vacancies (depending on your area), advertising costs, maintenance of $500 a year is pretty darn optimistic, I would factor at least 5% which would be over $800 (still optimistic).
For something that's gross income was 1400 I would pay 110k - 115k tops.
Some quick math using Ray's numbers imply 1.2% or more of the purchase price received as gross rent each month.
Stated a different way the property would produce something like 14.6% gross yield on an annual basis.
That should provide a very crude filter that lets you screen out the dogs when it comes to cash flow. The calculation is only as good as the assumptions as to what the rents are (or could be raised to).
John
[addsig]
So we would want at min a 15% gross yield per year?
I th ink the first thing you should do is study what makes a good rental... Learn about all the costs involved and the margins used to determine them, i.e. look at the sellers schedule E for the property and see what they listed last couple of years.
Then, you will be informed and ready to deal.
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Stockpro,
How do you get them to show the Sched E's?
I have looked at about 25 Duplexes and Triplexes and (yes they are listed through realtors and I am dealing with one realtor for all) nobody has a Schedule E. All the owners are not willing to share, most of them state that they don't have one and never filed one.
I doubt they don't have/didn't file them (especially 25 different properties), you can estimate it yourself. Another thing to consider is the type of rental you want. Are these real nice units? If they are, they will generally not cash flow as well as a property in the ghetto, and vis-a-versa.
I agree. I doubt that they did not file one but getting it from them seems to be a difficult process. That would sorta tell me that they have something to hide maybe.
The one example above is not in a ghetto but is in a low income area.
The guys asking price is 144K neighbors state that the tenants are Sec 8.
I am looking at buildin a duplex. Each unit will have 1450 sq feet. The land and duplex will cost me about 185,000. The town is growing quickly and the city has made it difficult for anyone else to get approval for multi-family zoning. I hope to get 800 a month for each unit and with the tax savings, I will be able to make it cash flow. Hoping the town grows and duplex appreciates. Am I being overly optimistic?
I'm in the same boat, been shopping for multis but prices are so high around here they don't make much. I'm looking for long term investment but a little cash would be nice :-D . I am looking to put 20-25% down. What do you guys look for a PCF on a per unit basis?
Foster1 - $1600 a month on a 185k investment is pretty tight. I wouldn't do it but you have to use your best judgement with area, etc. I don't count on appreciation, or tax benefits (at least in my calcs)
Jesa, toward the top of this post I put $150 per unit is my goal, I will make exceptions on really nice units, but not often.
GL
Thanks for the advice Ray. It is my first buy so I am a little apprehensive but it seems like the longer I wait the more expensive it becomes to build them.
Ray,
I noticed that you are from Naples. I recently made my first investment in your neck of the woods. Maybe we can meet when next I am in SW Fl.
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Thanks Ray, I re-read the post after I posted