Feedback on my first Deal Analysis!

[Christina Greaves]

Hey everyone,

I did my first real exercise on analyzing a potential deal and I'd love your feedback on the assumptions I'm making for estimating revenue and expenses!

Context: This is for a Seattle property where the main is a 3 bed / 2 bath and has a secondary unit, also 3 bed / 2 bath. My intention would be to LTR the main, and STR the secondary.

Here are my assumtions: 

• Purchase Price: As listed $875k
• Closing Costs: (2% of Purchase price) + $12k for furnishing the second unit that would be used for STR = $29,500
• Loan details:
  • I'm assuming 0% down on the financing, because I'm thinking my down payment would likely be funded from my HELOC which has an interest rate of about 7%-10%. My plan in fact would be to pay down the HELOC asap as the Stock from my employer vests each month when RSU's mature past the 1 year mark.
  • 30 year loan term
  • 7% interest
• For income I'm using: $9,629/ month
  • This is assuming $3,625 as rent for the main unit, and $6,004 for the STR
  • • For the STR this assumes a daily rate of $329, and an occupancy rate of 60% over the course of the year, averaged to a monthly amount.
• Property Taxes: $534/month (took this from the redfin mortgage estimates)
• Insurance: $328/month (took from the redfin mortgage estimates, and prorated an extra amount to account for mortgage insurance for the first 5 years since I'd be putting down < 20% in the eyes of the lender)
• Repairs and maintenance: 5% (Maybe I should use a higher number given foot traffic on the STR? 
• Vacancy: 3% (saw on ipropertymanagement as the ballpark average for WA state)
• CapEx: 5%
• Management Fees: 0% (I'm planning to self manage for the time being, though I know I should consider adding here ~10% to make sure the deal still makes sense if I wanted to eventually give it to a PM)
• Electricity/Gas/Water/Sewer/Garbage: 0 --> Tenant pays
• HOA: 0 --> N/A
• Other: $100 --> As a buffer for having to pay Utilities during vacancies (Should I add more here to consider ongoing supplies for the STR? Like Coffee, or a Netflix account for it?)

Let me know what you all think of these assumptions, and whether some of the numbers seem too low or too high, and/or any resources you would recommend for me to cross-reference them in doing due diligence!

Thank you thank you!! :) 

Christina

[Christina Greaves]

Quote from @Sean Smith:

@Christina Greaves Congrats on getting started analyzing a deal! One thing I see... the utility expense is solely on the LTR tenant. Your STR guests will absolutely be using utilities and are not going to be paying the utilities. Your LTR tenant should not be responsible for the STR unit's bill. If the units are metered separately this makes utility tracking easier, however if both units are on the same meter you'll have to get creative with how you bill for utilities. Either way, definitely consider the heightened utility expense in your analysis.

Thank you Sean! That’s a great point! I learned yesterday it’s a single meter, so I’ll have to call the utilities companies and get the estimate usage for that area and project out what the cost might be, and then prorate it for the LTR and use the remainder in my analysis!