Dups, Trips, and Fours?
I am aware it is still baseball season and you may think I am talking about Doubles, Triples, and Four Baggers, but no, alas, I am talking about investment properties in Costa Mesa. Specifically Duplexes, triplexes, and fourplexes.
As much as I would like to be at the Angels game now on the sunny side of the field, I am thinking of what a great time it is to invest in real estate. And especially the investment properties we have locally here in Costa Mesa real estate.
I’ve talked about the basics of how to purchase triplexes in a past post, and the mechanics are similar for duplexes and fourplexes. Same lending (or cash) needed, same process to find them, same general ideas on why you would want to own them.
Why, Why, Why? Duplexes Triplexes and Fourplexes
Why Invest? Perhaps you are frustrated with the stock market like many other investors at the moment. Zero returns on equity, or little or no gain year over year. Real estate has again become a “safe haven” since the perception is now that the market has bottomed out and we are starting to see signs of small appreciation. Investing with income properties in Costa Mesa real estate won’t make you rich overnight, but it does produce consistent income flow and that can certainly be in the 4-8% range on an annual basis depending upon the investment.
A Triplex on Rutgers Drive in Costa Mesa Real Estate
Oftentimes in Costa Mesa, these properties aren’t the prettiest units but do typically produce consistent cash flow.
Let’s look at investment basics on this property one of my clients purchased on Rutgers Drive in Costa Mesa. I will use general numbers to show the way these properties produce good income. This triplex is made of three two-bedroom, 1 bath units, each with a good-sized kitchen, dining area, and family room. Each one needed a bit of TLC when the triplex was purchased, but it did have a newer roof and new windows throughout the property.
The property is valued at $560,000.
Each unit can rent for approximately $1400/month currently, and that number should rise over the next few years.
An investment of 20% down ($112,000) is typically required on a loan, leaving a mortgage of approximately $448,000.
Rates for that type of loan are hovering around 4%, which would give you debt service/mortgage of approx $2140/month.
Not bad, huh? Consider taxes monthly of about $525 and you have a total due each month of $2665.
Each of your renters pays $1400, or $4200 total for all three units. That leaves about $1535/month left over as cash flow.
Of course there will be other maintenance expenses that pop up, but this is why these types of investment properties are in such high demand right now.
Let’s Do The Math
Let’s see how our calculation breaks down:
1. Gross rental income is $1400 X 3 X 12 months or $50,400 per year.
2. Payments are $2140 X 12 = $25,680 per year.
3. Assume you will have an owner’s repair expenses @ an average of $2500 per year.
4. Vacancy and credit loss is estimated at 6% of rents or $3024 per year.
5. The owner spends about $400 each year in miscellaneous and advertising costs and manages the property on their own.
Those are the basic operational items that go into our cash flow calculation. Let’s take our calculation of the profits:
- Rent income – Vacancy Loss – Payments – Expenses = Cash Flow
- $50,400 – $3024 – $25,680 – $2900 = $18,796 / 12 = $1566.33 per month in positive cash flow.
Analyzing your return as “cash on cash invested”, you would divide your actual cash investment of $112,000 down into the annual return of cash, or $15,192. This is a yield of 7% on your cash invested! There are few investments out there that yield this kind of return. Check out the rest of this rental property investment series to see the other ways in which this example property provides tax and other incentives and returns.
Interested in looking at what it would take to find an investment like this for yourself?
Call Costa Mesa real estate expert Colin Delaney at (714) 743-9882 or e-mail me.
