Posted by dave on June 06, 2011 at 21:46:48:
Search a great deal of the midwest, Indiana, Michigan, ohio river valley and plain states as well as Arkansas Tennessee some parts of GA and Fla and the south have a lot of inventory at reasonable prices. Not the glamour of east coast or west coast just cash flow no fancy appreciation.
rule of thumb for apt buildings - Posted by garrett-bc
Posted by garrett-bc on January 11, 2011 at 23:07:13:
Hello,
i remember reading an interesting formula “rule of thumb” for calculating whether a multi unit apt will cash flow positive or not. Does anyone have a formula for this?
my numbers that im working with are as follows;
$600k asking price
$100k down payment
$500k mortgage = $48k/yr
gross revenue = $87k
is there enough room here to accomodate insurance, taxes, vacancies, maintenence, repairs, and have enough left over to make a good ROI?
and-as always, any help is greatly appreciated!
cheers
garrett-bc
Re: rule of thumb for apt buildings - Posted by John Clark
Posted by John Clark on February 05, 2011 at 08:52:53:
Find the NOI (Net Operating Income) and multiply by 9.
87k GOI (Gross Operating Income)
at 40% expenses leaves 52.2K NOI
x9 = $469,800.
If expenses are lower then the value goes up. Of course there are so many other factors here. Cost of money if not all cash. Best use of cash? Possible appreciation of the asset? Value-Adds? Principle paydown? And of course location, location, location.
Re: rule of thumb for apt buildings - Posted by dave
Posted by dave on January 13, 2011 at 04:34:27:
I have never been much for formulas but if I had to use one on apts in any hood that is less then perfect .I looked to pay no more then 300% of what the annual income is generated per year. So if your building generated 90k a year a 270k price would be close to my offer. This also depends on expenses. I want expenses to be less then 40% to 45% of income as many residential units nationwide are in this area for expenses. I know its half of what the public pays on average but I pay cash so I am not average as a buyer goes. If you get into larger projects in growing markets I might be inclined to pay a little more but not much. Markets in the Mid West seem to cash flow better but they dont appreciate much. The nice thing is if your units are less cost per at least its easier to make a debt service if you have to. To me safety is better then being over leveraged and just hoping to gain appreciation. Most investors think I am crazy not to finance. In my defense I have learned over time that very few investors get foreclosed on that don’t have mortgages then the ones that do:) One unit at a time free and clear and you wont be working hard very long. Maybe you trade into larger properties as time goes on with 1031 exchange.
Re: rule of thumb for apt buildings - Posted by brandoncbsre
Posted by brandoncbsre on January 12, 2011 at 09:40:52:
Probably not as expenses will eat 40-50% of the imcome. Every property is different and you need to get the ACTUAL operating expenses for your target property.
Where can you buy for that price? - Posted by Maurice
Posted by Maurice on March 05, 2011 at 16:34:52:
Where can you buy decent properties for 300% of annual income?
Re: rule of thumb for apt buildings - Posted by Dave
Posted by Dave on January 13, 2011 at 04:44:01:
I failed to mention you want to budget for any upgrades to buildings you buy to keep expenses low like. Heating, insulation, newer ac units or… windows, doors and other things that affect your monthly expenses. I also like to analyze such things as laundry and the age and how they affect an electric bill as well as metering of buildings. Checking age of water lines above and below the ground on a property for leaks and high water bills. Seeing expenses for trash removal and lawn care, pest control,elevator inspections,security, and management fees as well as insurance and other expenses that affect building value. All of these things and more can keep expense down and should be a strong part of your due diligence when shopping to aquire multi famiy.