In looking for duplex/triplex properties, how do you determine good deals and the property's cash flow.

I see a duplex for sale, only showing the rents they receive, but how do you determine if the deal works or not, figure expenses etc.
In Buying Property - Asked by frances p. - Aug 28, 2009
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Answer(s)

Gary M.
Broker/Agent
Bellingham, WA

Every property is different. Age,condition, location, local economy. Who pays the utilities, owner or rentors. Why are they selling. Have inspections been done, will the city be upgrading roads sidewalks etc. in the near future adding great expense to the property owners. I would get an experienced local real estate agent to help. Learn as much as you can before you buy, learning after can be expensive.

Aug 28, 2009
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Davide P.
Broker/Agent
Pinole, CA

This is when it helps to have a good Realtor who can tell you if the rents are realistic and how much it will be to fix the building up and what the expenses are. A VERY QUICK/GENERIC formula I tell my novice investors to use is that the building should bring in $1000/month for every $100k you spend initially. I.e. Triplex that is $300k including fix-up costs should generate $3,000. If the basic formula works, it's probably worth it to do the math. Under the "Commercial/Investment" tab on my unfinished site there is a simple calculator investment calculator that might help.

Aug 28, 2009
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Gregory G.
Broker/Agent
San Francisco, CA

You can estimate the expenses or comp it out using gross rent and price per foot. Also what kind of loan can you get?
http://www.gregorygarver.com

Sep 1, 2009
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Paul S.
Broker/Agent
Glendora, CA

Find out what the actual expenses are now and what any new expenses will be for you, i.e. new higher taxes. Be sure and figure in a vacancy factor because seller's rarely do. Subtract the expenses off the gross income. Divide the net operating income by the sales price and you get a cap rate. Do not include debt service. Once you have determined the cap rate compare it to what is the "going" cap rate in the area for similar properties. The lower the cap the higher the price relative to the income it produces. There are many other things to look at for "good deals", such as, lower than market rents but priced at a "going" cap rate. A property like that has upside potential. If you would like more info contact me at pstoski@yahoo.com or 626 485-5163. Paul Sylvester, CCIM

Sep 2, 2009
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