How is my analysis logic?

Question

I have spent the past 12 months reading the forums, particularly on how to sharpen up my skills on crunching the numbers on potential deals, to mitigate the risk of making a poor investment decision. I made a resolution that 2020 is the year that I will make my first real estate purchase, and I plan on going through with it! My plan is to buy a property, live in it as my primary residence, and to eventually move out of the property but keep as an investment. As such I did my analysis on the assumption for this future scenario, where I have moved out and all units are being rented.

I have found that investors have many different ways of crunching the numbers. What I have done is taken the different aspects of several calculators I have seen on this website and tailored it to my own criteria. My long term goal is not to manage a rental property empire, but to own a few properties to diversify my investment portfolio away from only stocks, bonds, etc.

Are there any glaring mistakes in the below? Something that is a risky assumption? Note the the property mentioned below is completely made up and not real, the purpose of the below is to validate assumptions and formulas on cost.

Jim Hartmann · Answer

Hi @Thomas Daly,

Numbers are not looking too bad. A couple items I noticed was the closing costs of $20,000 and the property management. For a property of this size, I would not expect that you would need to set aside $20,000 for closing. I would check with a title agency in the area and see what is typical. You are not paying realtor fees and unless you do an environmental study I would suspect you would be 1/4 to 1/3 of that cost.

Also, even though you are self-managing, you need to set aside 8-10% for property management. If you choose to pay yourself or not that is up to you, but if you are looking to sell these one day it makes sense to factor in the management fees. Also, should you get to where you are tired of managing or too busy to manage then you already have it factored in.

Another thought, it is good to analyze everything to make sure where you are at with a deal but do not wait forever either. The market may correct in your area due to the virus shut downs and so you may soon find a better deal than you had before. Home values will be hard to determine during this time, but find something that works for your numbers and jump in.

Best of luck.

How is my analysis logic?

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