Help with an Analysis

[Tanner Kenneth Jenkins]

Hey guys I'm a new investor and am practicing doing analysis on properties. I would love your thoughts on this one. 

https://www.realtor.com/reales... 

The property is listed for $320,000 but I hope to get it for 70% of that price($224,000). Rent is currently low and after doing some remodeling I hope to get it to $1,100 for unit 1 and 1,000 for unit 2.

These are my numbers below. I would love any and all feed back/advice you have. 

Duplex-Asking price 320,000

70%-$224,000(what I will try to get it for)

Down Payment-$48,000

Closing Costs(5%)- $9,600

Repair Costs- $20,000

Unit 1- 3 bedroom, 1 bath

Rent- $805

Future Rent-$1,100

Unit 2- 2 bedroom, 1 bath

Rent- $-675

Future Rent-$1,000

Operating Cost

Vacancy-(5%)- $105

Repairs(5%)-105

CapEx(5%)-$105

Utilities-Tenant pays-$0

Home Insurance-47$

Property Tax- $136

Mortgage Payment- $866/per month

Property Management(11%)-$231

Total=$1,595

Eventual Rent=$2,100

$2,100-$1,595=$505 Cash Flow

$505x12 months=$6,060 Yearly Cash Flow

$6,600/60,000 Investment=10% ROI

[Joe Villeneuve]

Based on your numbers (some of them I question), it will take you over 12 years to recover your cost...way too long. Too many CAPEX costs will add to the cost within that time period and will make your recovery of cost go to more than 15 years.

Recovery of your cost is the most important number for analysis for a rental property.  You have to recover your cost before any profit starts.  You cost is the cash you put into the deal, at any time during the deal.  In this case, you're looking at around $74k in cash at the start, and your cash coming back (CF) is only $6k/yr.  That means it will take over 12 years to recover your cost (cash), and that's way too long for me.  During that time period, you'll be replacing the roof, at least one of the HVAC units (if not both), HWH's, kitchens, floors, driveway, etc...  All of these items will come out of pocket as cash and will add to your total cost you have to recover to make a profit.

Now before you say "...but I'm saving money each month to cover all those added repair/CAPEX costs"...go ahead and add up what you are taking out of the rent to cover this ($315/m, $3,780/y, about $46k/12 years) and tell me if that hold back system works.

I want to recover my cost (initial cost) within a 5 year period (max), and to avoid those added (most) costs, I want to be able to have enough appreciation during that time to sell the property and take the profits and move them into the next deal(s).  This way, my equity doesn't lose value/money as my property appreciates (yes you do), I avoid the added out of pocket costs, and my property value and cash flow should double every time I repeat this.