Help running numbers

[Jonathan Jackson]

Hey guys, I wanted to know is there any websites or ways I can practice running numbers on homes. I ask because right now I go online and just pick a home off zillo ect and then play with the bp tool calculators but it doesn't feel like I'm really running numbers because I may not have the purchase price, arv, ect. So if someone can assist me on how to look at homes and get the correct details I need to run my numbers to see if a property would make sense to purchase or just some ideas on getting myself familiar with this process.

[Ricardo R.]

@Jonathan Jackson okay I think I understand. When I run numbers in a very simple way to put it I have I'd say 3 phases as far as numbers; 1) the numbers on the property itself i.e. income, expenses, etc.; 2) the numbers of the sales comps or area cap rate; 3) the numbers on the rental comps. Outside of numbers I will also look at the area and see what the unemployment rate is and if the median income can support 2.5x's the average rent amount I'm seeking after the purchase - I also look at the competition's rates and quality. Lastly, I just subjectively ask myself if I even want it regardless of how good the numbers are.

When I run my numbers for SFH to 4 units I'm looking for Cashflow and I'm looking for Equity either built in or through a value add. When I run my numbers for 5+ units I again look for Cashflow and value add opportunity. If its SFH/4units I'll look at the comps to see what the property is worth, I'm aiming to get as close to 20% as possible, sometimes I can get there through a value add after purchase i.e. add extra bedroom, garage, etc. other times I come just short of it. If it's 5+ I'll look at the are cap rate and ensure the price falls in line with that. --- For this, I use a combination of MLS, Zillow, Redfin, Loopnet, home value estimators.

When I run my numbers on the actual income and expenses on an SFH, I make sure I account for the increased taxes that are going to occur after purchase, you can call the tax assessor for that property to check or go to the county's website. If there is no homestead I use a 38% increase of the taxes listed as a rule of thumb, if it's homesteaded you need to account for that. I also factor the insurance, hoa dues, garbage collection, snow and lawn, utilities, advertising, maintenance/repairs, CapEx, and property management. I typically will not go below 5% vacancy on SFH/4units; on 5+units I will try to account for at least 8% vacancy depending on the type of property. On the first few properties you should call in and get insurance quotes after a few properties you will be able to reasonably estimate what insurance will run without having to call in until you get serious about the property. On maintenance and CapEx I usually account for 5% each of the rent but, just know that the rule of thumb is 10% for each --- It depends on your property class - A, B, C or D/warzone. SHF/4Unit PM will run you about 10%; maybe less for 5+ units depending on size. Additionally, if its 5+ you will need to ask for the P&L, Rent Rolls and T-12 to start your numbers.

I then look at the rental comps and see what I can reasonably charge for rent. In my opinion where the MLS is the apex for SFH/4unit sales - Zillow, Craigslist and Apartments.com are the apex for rentals. I say this because most people use a realtor to buy and sell SFH/4Units but a large part of the rental market is done without using realtors, which in turn makes the MLS obsolete as far as rent comps go in my opinion, but definitely still check it if you have access. I then apply that to my analysis numbers of the property and calculate my ROI, Cashflow, NOI, etc. If it's for 5+ units I will technically have 3 analysis sheets - 1) my analysis with the numbers the Seller has presented me; 2) my analysis accounting for my standard minimums i.e. vacancy 5%, CapEx 200/unit/yr., etc.; 3) my analysis for projected value add potential i.e. increased rents to market value, etc.

I then look at the area's unemployment and median income and make sure that the median income can support the rent I'm asking by 2.5x's yearly. I'll also look for development and competition. 

Jonathan, these are just a few bullet points of the most important items that comes to mind but, after you get it down it shouldn't take you more than 10-15 mins per property. As you go you will be able to just tell if something is under rented or over priced etc. In my opinion it is EASY to find a property that cashflows and has a favorable ROI, I find those all the time; what is a bit more challenging is finding that along with the 20% under market, or value add potential but, this is how I look at property - it needs to have upside along with cashflow. 

I hope this helps. 

Alex