Deal Or Not?
Guys
Tell me if this is a good deal or not.
I'm looking at a Quad-each unit 675.00 for a total of 2700.00. The price is 275,000. This is a new building. So, no maintance right off to do. With 10% down one mortgage broker told me with taxes, insurance at a 6.7% the monthly payment would be 2200.00. That leaves 500.00 cashflow per a month. The building is located in a desirable area. The area is a community where there are several other quads located together. Give me your thoughts.
Thanks
Chelsea :-?
chelsea,
I am far from an expert on this, but I'll give you my bit of advice.
One quick and dirty analysis of the purchase price would be that the monthly gross rent should be no more than 1% of the purchase price (in this case $270,000 - $2700/.01). Of course, you would probably want to buy at some discount to this.
Also, I think there are other expenses to consider - repairs, trash removal, advertising, miscellaneous as well as a vacancy factor (5-10%) that should be considered. In this case you should look at these expenses subtracted from your gross rent to get your net operating income (NOI). Use that to calculate your cap rate (NOI/Purcahse Price) and people generally look for 10-12% cap rates.
Then see if your cash left after expenses will be at least 125% of your monthly debt payment (debt service ratio).
Hope this helps. Good luck.