Running the numbers for a property

[Denis Davidyuk]

I am trying to run some numbers on different properties and I don't know if I am running these numbers correctly. For example this particular house costs 59900 and rents for 1000 in Cleveland, which is 1.6% of the purchase price, yet it barely cash flows. Am I calculating something wrong?

tax 2367.5

ins 1200

lawn 504

property management 10% 1000

repairs and maint            10% 1000

capex                      5% 500

vacancies              5% 500

sewer water garbage       1300

principal and interest   2892

TOTAL = 11163.5

If the property management group takes 1st month rent then for the year the house will make 11k which makes this even cash flow negative. Is something wrong with my calculations?

[Martin Neal]

@Denis David your numbers are very wrong. Start by calculating a per month basis. It looks like you’re mixing annual cost and month cost.

[Martin Neal]

@Denis Davidyuk and your repairs are high, water too

[James Wise]

Originally posted by @Denis Davidyuk:

I am trying to run some numbers on different properties and I don't know if I am running these numbers correctly. For example this particular house costs 59900 and rents for 1000 in Cleveland, which is 1.6% of the purchase price, yet it barely cash flows. Am I calculating something wrong?

tax 2367.5

ins 1200

lawn 504

property management 10% 1000

repairs and maint            10% 1000

capex                      5% 500

vacancies              5% 500

sewer water garbage       1300

principal and interest   2892

TOTAL = 11163.5

If the property management group takes 1st month rent then for the year the house will make 11k which makes this even cash flow negative. Is something wrong with my calculations?

 If you've got a property in Cleveland that rents for $1,000/mo I would anticipate your NET income would average out to be about $6,000 per year. Some years it will be less, some it will be more. The riskier the neighborhood the higher the expenses & inconsistencies will be. Refer to The Ultimate Guide to Grading Cleveland Neighborhoods to gauge the level of risk of the neighborhood.

[Denis Davidyuk]

@Martin Neal Thanks for pointing that out, but now the costs seem even higher. I think my insurance is too high but I am not really sure how much water + sewer go for in clevealand, any ideas for single family homes? And what would be a reasonable repairs + maintenance estimate?

[Martin Neal]

@Denis Davidyuk try using the rental property calculator and share it with us. I don’t know the Cleveland market so I not 100% sure on the cost. Insurance is high, $100 per month is too much. I pay $35-65 a month. Keep in mind, most investors don’t want to insure at the replacement cost but your all-in cost (65K). Traditional insurance companies like a State Farm will force the replacement cost which could be $220K or more.

[James Wise]

Originally posted by @Martin Neal:

@Denis Davidyuk try using the rental property calculator and share it with us. I don’t know the Cleveland market so I not 100% sure on the cost. Insurance is high, $100 per month is too much. I pay $35-65 a month. Keep in mind, most investors don’t want to insure at the replacement cost but your all-in cost (65K). Traditional insurance companies like a State Farm will force the replacement cost which could be $220K or more.

 Best insurance company for rental properties is Foremost.

[Tom Ott]

Originally posted by @Denis Davidyuk:

I am trying to run some numbers on different properties and I don't know if I am running these numbers correctly. For example this particular house costs 59900 and rents for 1000 in Cleveland, which is 1.6% of the purchase price, yet it barely cash flows. Am I calculating something wrong?

tax 2367.5

ins 1200

lawn 504

property management 10% 1000

repairs and maint            10% 1000

capex                      5% 500

vacancies              5% 500

sewer water garbage       1300

principal and interest   2892

TOTAL = 11163.5

If the property management group takes 1st month rent then for the year the house will make 11k which makes this even cash flow negative. Is something wrong with my calculations?

Maybe I missed something, but if it is a SFR just have the tenants pay for grass, snow, water, sewer, and garbage?

[Denis Davidyuk]

Yep Tom Ott I wasn't sure if that's what people are doing but then checked some rentals and that seems to be common.

[Jad Boudiab]

@Denis Davidyuk Underwriting the deal takes a lot more than the basic spreadsheet numbers, your taxes will vary by municipality, repairs & maintenance will vary by condition, water/sewer depends on your lease, vacancy is sub-market specific, etc.

To better help you with this, what municipality is the property located in?

- If you're in Cleveland proper, your taxes should only be $1,732 per year at $59,900, not including assessments if any.

- Insurance is typically around $68/mo for an occupied SF under 60k.

- PM is 10% per month, plus any additional services required.

- CapEx & Maintenance at 17% of rents - combined, but again this depends on condition. It's minimal if property is turnkey/rehabbed, and a lot more if the property has deferred maintenance.

Vacancy at 6% is a fair assumption in SF at $59,900.

Water/sewer will depend on who's paying, if tenant then $0, if owner then $1,200 for the year

Lawncare is on the tenant. You will have to cut when unit is vacant. Budget $100 for this.

Add another $35 - 150 per year for city rental registrations, depending on municipality.

Principal and interest will vary.

[Denis Davidyuk]

Thanks a lot Jad!

[Denis Davidyuk]

I am looking at Parma and Euclid currently

[Jad Boudiab]

The $59,900 price point is achievable in Cleveland and Euclid, not so much in Parma.

I personally like C grade Single-Family in Cleveland and Euclid, which come with more stability than multis. B grade is the way to go for Multi-Family, depends on the numbers.

With that said, here are each city's respective tax rates for 2018, subject to change next week once 2019 rolls around.

Euclid - 3.74% of market value

Parma - 2.69% of market value

[Federico Gutierrez]

You're looking at a house and you'r going to pay for lawn care? That's crazy. Get that out of there and on to the tenant

I believe we have spoken about the water and the sewer already. Your numbers are way off PLUS you don't factor in the great tax benefits you'll get on your tax return. That's priceless 

Insurance is like $600-800/yr

NO WAY you getting a rent ready $59900 house in Parma. I just closed one for $65000 that needs repairs. And upfront repairs are not in your numbers

[Brian Garlington]

@Tom Ott   @Denis Davidyuk @Federico Gutierrez  @jameswise

Maybe I'm wrong but if the tenant is on Section 8 isn't the owner still responsible for water sewer garbage and lawn care on an SFR in Cleveland? I don't know if Denis's property has Section 8 tenants in it but....,

[Tom Ott]

Originally posted by @Brian Garlington:

@Tom Ott   @Denis Davidyuk @Federico Gutierrez  @jameswise

Maybe I'm wrong but if the tenant is on Section 8 isn't the owner still responsible for water sewer garbage and lawn care on an SFR in Cleveland? I don't know if Denis's property has Section 8 tenants in it but....,

 Oh, Section 8 is a different type of situation and that is exactly why I do not touch it.