SF Peninsula Real Estate Guru

In my previous post, I did a “quick” analysis of a 3 unit property listed in Menlo Park. On this property, 1161 Noel Drive, Menlo Park, a buyer would need to put about 50% cash down payment to obtain at least a break even cash flow.

Let’s look at another possible investment in the Dallas/Ft. Worth area of Texas.

Woodland Estates is being built by Value Builders.

There are duplex units with 3 bedrooms 2 baths each available at $230,000.

If a buyer was to purchase one of these duplex properties and put 20% cash down, a small positive cash flow of approximately $5,000 per year would result.

The numbers would look like this:

Each unit in the duplex would rent for $1,200 per month for a total gross income of $28,800 per year. Estimating expenses at 35% of gross income = $10,080 in annual expenses - which results in a net income prior to debt service of $18,720 per year. The 80% loan in the amount of $184,000 at 7% would require annual interest payments of $12,880. This results in a net cash flow of almost $5,000 per year.

So let’s compare, one could buy a 3 unit building in Menlo Park for $1,250,000 and put $600,000 cash down payment into the property and obtain a break even cash flow or one could buy a new duplex in Dallas/Ft. Worth for $230,000 and put $46,000 cash down payment into the property and obtain a $5,000 annual cash flow. If one was to use the same $600,000 cash needed to purchase the Menlo Park property and buy say 8 of the Dallas duplexes, one would obtain about a $40,000 a year cash flow with the same cash investment.

Does that mean the Dallas property is a better buy? Maybe Yes maybe No.

The above cash flow analysis does not include the return on any future appreciation in the property.

The additional $40,000 per year cash flow from the Dallas/Ft. Worth duplexes could be offset if the Menlo Park property appreciates at a rate 3.2% ($40,000/$1,250,000) greater than the Dallas/Ft. Worth properties appreciate.

More to follow - I welcome any questions or thoughts you may have on the above.