First investment Construct and Rent

[Jessica Uresti]

First time investors. We found a property (multi-family) 2 units, 2 bedrooms/2 baths in the front house, and a full bath with kitchen efficiency in the back unit. Good price in a developing neighborhood near downtown Houston. Construction was stopped midway and it is for sale. We brought our contractor to take a look and he gave us a estimate. We will be getting a more detailed estimate. From what we know of the cost of the house plus to finish construction we can afford the loan. Also putting the numbers in, the rental income should give us maybe $400 -$900 profit a month once both are rented.

Our lender and realtor seem to think we are crazy because the property needs floors, walls etc etc to be completed. I am wondering if we could be getting in over our heads on this.

Any thoughts? Thank you.

[Mitch Messer]

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

[Jessica Uresti]

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

[Mitch Messer]

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

[V.G Jason]

Quote from @Jessica Uresti:

First time investors. We found a property (multi-family) 2 units, 2 bedrooms/2 baths in the front house, and a full bath with kitchen efficiency in the back unit. Good price in a developing neighborhood near downtown Houston. Construction was stopped midway and it is for sale. We brought our contractor to take a look and he gave us a estimate. We will be getting a more detailed estimate. From what we know of the cost of the house plus to finish construction we can afford the loan. Also putting the numbers in, the rental income should give us maybe $400 -$900 profit a month once both are rented.

Our lender and realtor seem to think we are crazy because the property needs floors, walls etc etc to be completed. I am wondering if we could be getting in over our heads on this.

Any thoughts? Thank you.

 Near downtown?

Oh lord, are we in the 3rd ward thinking we hit gold. Or Eado? If it's those, then your realtor is likely right...for once. 

[Jessica Uresti]

Quote from @V.G Jason:

Quote from @Jessica Uresti:

First time investors. We found a property (multi-family) 2 units, 2 bedrooms/2 baths in the front house, and a full bath with kitchen efficiency in the back unit. Good price in a developing neighborhood near downtown Houston. Construction was stopped midway and it is for sale. We brought our contractor to take a look and he gave us a estimate. We will be getting a more detailed estimate. From what we know of the cost of the house plus to finish construction we can afford the loan. Also putting the numbers in, the rental income should give us maybe $400 -$900 profit a month once both are rented.

Our lender and realtor seem to think we are crazy because the property needs floors, walls etc etc to be completed. I am wondering if we could be getting in over our heads on this.

Any thoughts? Thank you.

 Near downtown?

Oh lord, are we in the 3rd ward thinking we hit gold. Or Eado? If it's those, then your realtor is likely right...for once. 

No Fifth Ward. Can you tell me why you think it’s a bad deal?

[Jessica Uresti]

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

[Mitch Messer]

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

[Jessica Uresti]

OK well I need to understand these terms. I will work on that. Now I see I don't think I entered things correctly.

[V.G Jason]

Quote from @Jessica Uresti:

Quote from @V.G Jason:

Quote from @Jessica Uresti:

First time investors. We found a property (multi-family) 2 units, 2 bedrooms/2 baths in the front house, and a full bath with kitchen efficiency in the back unit. Good price in a developing neighborhood near downtown Houston. Construction was stopped midway and it is for sale. We brought our contractor to take a look and he gave us a estimate. We will be getting a more detailed estimate. From what we know of the cost of the house plus to finish construction we can afford the loan. Also putting the numbers in, the rental income should give us maybe $400 -$900 profit a month once both are rented.

Our lender and realtor seem to think we are crazy because the property needs floors, walls etc etc to be completed. I am wondering if we could be getting in over our heads on this.

Any thoughts? Thank you.

 Near downtown?

Oh lord, are we in the 3rd ward thinking we hit gold. Or Eado? If it's those, then your realtor is likely right...for once. 

No Fifth Ward. Can you tell me why you think it’s a bad deal?

Oh lord, I was hoping you would not say that. That's the last place you want to be in Houston, maybe on par with Sunnyside but 5th ward is worst in my opinion.

Numbers probably pencil beautifully, but there's a reason why. 5th ward was horrible back in the day, got better a bit, but now it's trending back to some of the worst crime. 5th ward is also a cancer cluster, not sure if you are aware of that. There's a reason it'll never truly develop.

[Jessica Uresti]

Yes I know it is a cancer cluster and so is East side, Downtown and Northside. I actually like Historic 5th Ward and Kashmere Gardens, maybe I am weird but I like the area (some parts). Kashmere Gardens though is in a flood zone. Anyway I like the inner city and I am looking for something around 200k.

[Jessica Uresti]

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

[Drew Sygit]

@Jessica Uresti construction is NOT a linear process and rarely goes as planned!

So, you should have at least 10% contingency factor built into your numbers plus add at least 25% time to the timeline.

[Jessica Uresti]

Quote from @Drew Sygit:

@Jessica Uresti construction is NOT a linear process and rarely goes as planned!

So, you should have at least 10% contingency factor built into your numbers plus add at least 25% time to the timeline.

Ok why does everyone yell here haha.

[Holly Kaufman]

Hi Jessica, 

I am happy to look over your numbers for you if you'd like. I agree with Drew to add at least 10% on top of your construction bid. For the rental income after construction is complete, did you get rental comps from your realtor? You just want to ensure those estimates are sound. 

Last piece of advice would be to check out Houston credit unions for the loan. I know of at least two that have construction loans that you can roll into standard 30 year loans after construction is complete and reduce your refinance expenses. 

Hope this helps and good luck.

[Mitch Messer]

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

[Jessica Uresti]

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

[Mitch Messer]

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

In the calculator snapshot above, it shows a "Management Fee" of 0%.

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

[Jessica Uresti]

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

In the calculator snapshot above, it shows a "Management Fee" of 0%.

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

 I DO want to be the property manager. But I guess your saying I will need to hire one.

[Mitch Messer]

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

In the calculator snapshot above, it shows a "Management Fee" of 0%.

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

 I DO want to be the property manager. But I guess your saying I will need to hire one.

I'm saying whether you do it yourself or not, the expense doesn't go away.

Also, property management is its own profession, just like real estate investing. You can't be great at both simultaneously!

Do the PM if you really want, but recognize that doing so won't save you a penny and will distract from your investing efforts.

Again, ask me how I know this...

[Jessica Uresti]

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

Quote from @Jessica Uresti:

Quote from @Mitch Messer:

@Jessica Uresti It sounds like a major renovation, so you may be getting in over your heads on your first deal.

But, let's talk numbers first: Can you share the financials that indicate "$400 -$900 profit a month?"

Also, what exactly was the quote provided by the contractor?

 Hi Mitch thank you.

The listing price is $140k the rough estimate is 65k for finishing the construction. Framing, electric, plumbing is completed. Sheet rock is purchased. For both units. We are planning on getting one more estimate not a formal one yet but a rough one from another trusted contractor.

I put this information in a Google sheet and that is where I got the profit number. 

https://docs.google.com/spreadsheets/d/1HpdX8GG4tDZVtfVykfs6...

 Great, can you (just for now) give "Viewer" access to anyone with the above Google link?

Ok it’s open! Thanks.

Here's what I see:

1. First, your cash flow is showing as $2,367 per year. That's only $197/mo of spendable profit, not $400 or $900.

2. I don't know your market, but the vacancy estimate of $450 seems waaay low. At 2% (actually, it's just 1.875%), you're saying you expect each unit to go vacant for just one month out of every 48! A more realistic vacancy estimate is 1 in 12 months, or 8.33%.

3. Your operating expenses appear to exclude property management, which can be 8-10% of your rental income.

4. I didn't see where you captured the down payment you'll need to get bank financing, or the costs to close the purchase, as part of your initial investment.

5. Assuming it's accurate, a 5% cash-on-cash return (cell F22) is not nearly enough to justify all this effort! We typically won't look at deals offering less than 10% CoCR.

Honestly, I don't see much of a deal here.

Could you tell me how this looks to you?

I see you did add things like closing costs, maintenance expense, and a more realistic vacancy rate.

But your analysis is still problematic:

1. No property management expense

2. As an investor, you're not likely to get 6% non-owner-occupant bank financing for 30 years. It'll be closer to 7-9%.

3. Your original rent was $2K, but now it's $2200. Why the 10% increase?

Using your original assumptions, this deal is a money-loser!

If you want to make this work, you should do it by renegotiating the price and terms, not by adulterating your analysis.

For the record, I did the exact same thing when I was getting started! We all want to close that first deal so badly that we will wreck our financials to make it "work."

In the mergers and acquisitions world, they call it "deal heat!"

My advice is to slow down, take a breath, and always let the numbers guide you.

Otherwise, you're not an investor; you're just a speculator! And, eventually, speculators get slaughtered!

Thank you. Yes I did calculate at 9%. So I want to be the property manager is that possible? 

In the calculator snapshot above, it shows a "Management Fee" of 0%.

You don't want to be the property manager, but property management is an unavoidable cost of operating a rental business. You should hire a great PM. And, you'll need to account for that expense in your financials.

 I DO want to be the property manager. But I guess your saying I will need to hire one.

I'm saying whether you do it yourself or not, the expense doesn't go away.

Also, property management is its own profession, just like real estate investing. You can't be great at both simultaneously!

Do the PM if you really want, but recognize that doing so won't save you a penny and will distract from your investing efforts.

Again, ask me how I know this...

Haha yes I understand what you are saying, there will be a cost even if I do it. 
My profession is software / web design and I am interested in property management and using a property management type software. But yea I get it. Thank you.

[Chris Kersey]

A couple of thoughts: 

- Factor in more contingencies for the unknowns (this has been mentioned above). Construction time and budget rarely stay as planned, especially with a remodel. 

- I'm OK with 5th ward. The area is rapidly changing/appreciating and will continue to do so. 

- You can absolutely manage 2 units yourself. Do the research and stay compliant, but this is completely doable when you set yourself up for success with knowledge and systems. 

[Jessica Uresti]

Quote from @Chris Kersey:

A couple of thoughts: 

- Factor in more contingencies for the unknowns (this has been mentioned above). Construction time and budget rarely stay as planned, especially with a remodel. 

- I'm OK with 5th ward. The area is rapidly changing/appreciating and will continue to do so. 

- You can absolutely manage 2 units yourself. Do the research and stay compliant, but this is completely doable when you set yourself up for success with knowledge and systems. 

Thank you for this information. I will make sure to plan for unknowns with this or any other properties I find. I am definitely willing to learn about this business and property management as well.