Please keep in mind that my comments are based on multifamily commercial property, not SF used as rental, but here goes.
I wouldn’t touch it as a long term hold, maybe as a fix and flip. Negative cashflow is poison. Here’s what makes me go through a deal:
Begin with gross rents.
Subtract all of your expenses EXCEPT interest. This includes but is not limited to:
Property Taxes / HOA if you have it
Insurance
Any utilities you pay (water? trash? gas? electric?)
Vacancy & tenant bullshit (bounced checks, etc) allowance (highly variable based on area and property quality vs rental rate. My vacancy rate is very close to 0%)
Property management fees
Maintance allowance (typically allocate 1% of purchase price here annually for a building in decent shape)
the result is your net. Divide your net by your cash in the property (with commercial buildings I’m typically in for 25% down, plus closing costs, plus some float), this gives you your cap rate. If you don’t get at least a 10% cap rate, walk away.
This nets you 20-30% annual ROE, most of which is the difference between your cap rate and your mortage interest rate.
Please keep in mind that my comments are based on multifamily commercial property, not SF used as rental, but here goes.
I wouldn’t touch it as a long term hold, maybe as a fix and flip. Negative cashflow is poison. Here’s what makes me go through a deal:
Begin with gross rents.
Subtract all of your expenses EXCEPT interest. This includes but is not limited to:
Property Taxes / HOA if you have it
Insurance
Any utilities you pay (water? trash? gas? electric?)
Vacancy & tenant bullshit (bounced checks, etc) allowance (highly variable based on area and property quality vs rental rate. My vacancy rate is very close to 0%)
Property management fees
Maintance allowance (typically allocate 1% of purchase price here annually for a building in decent shape)
the result is your net. Divide your net by your cash in the property (with commercial buildings I’m typically in for 25% down, plus closing costs, plus some float), this gives you your cap rate. If you don’t get at least a 10% cap rate, walk away.
This nets you 20-30% annual ROE, most of which is the difference between your cap rate and your mortage interest rate.
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