Am I doing my quick 5-minute rental property analysis properly?

Question

Hello,

I am a newbie and have appreciated the great feedback I have received thus far from previous questions.  Right now I am focusing on doing quick 5-minute rental property analysis to see if it meets my criteria.  When I am ready to invest, I am probably going to go the 20% down w/traditional 30-year mortgage route on a SFH or multi-unit.

Below is my current routine.  I want to know if this is the right methodology b/c if it isn't I don't want to waste my time doing the wrong thing.

• Go to realtor.com and see what has sold in my area (DC Metro area is where I will invest even though I live in NYC)
• I'll take the price of a listing and put 20% down and plug it into my spreadsheet
• I will go to rentometer.com and *try* to get a realistic rent for the property
• I use the 50% rule for expenses
• I look at cash flow, cap rate and cash-on-cash as a barometer

I've done this about 10 times so far and maybe 1 came out w/roughly a $250+ monthly cash flow.  Questions I have...

• How accurate is rentometer.com?  I'm usually taking 1% of the purchase price to give me a gauge and then end up adjusting it based off rentometer.com.  Is there a way to get a more accurate number for rent?  People say Craigslist, but it has too much spam on it.
• I know there are many schools of thought on the 50% rule but it seems like this is the main thing that's bringing cash flow down.  I want to conservative but this rule seems to rule out many properties even before doing any analysis.  Maybe that's a good thing?
• The two main variables I just mentioned, rent and expenses, seem to be very hard predict.  Yet they have a direct impact on my ROI metrics and therefore leaving me unsure about my analysis.

Would appreciate your thoughts...

Kelly N. · Answer

Rent estimates- I would find rental listings in your area of interest, whether it be on craigslist or other rental sites (there are dozens) and start a spread sheet with known rents- enter in all the info you have on each unit- #beds, #bath, square footage, condition, parking situation, laundry, area, who pays for utilities, price, date available, address and unit # if possible.  You may luck out and find a company with a lot of rentals on their website- I did.  Once you have your spread sheet, you can sort by whichever column you want, and compare your real listings to the houses or apartments you are looking to buy.  Eventually this will become second nature to you, but it is good to go back and update so you can follow the rental trends in the area.  That's why the address and unit number are helpful- you can see if they raise their rent next year or make updates to the unit if you keep good enough records.

Taxes- Some municipalities publish tax info and you can get it online for free.  Make sure you check to see if they are claiming occupancy (homesteading) since  this will lower the taxes.  Find out the millage rates for the areas you are looking at.

Insurance- Make friends with an agent and get them to give you a couple of quotes on some of the properties you are looking at so you can budget this.  It will be highly area and age of building dependent, but you have to start somewhere.

Utilities- if the LL is paying utilities, you may be able to call the provider and get an average bill for the year for your calculations.  I feel like I have a pretty good idea how much water is per occupant in my little niche but I call the energy company (gas and electric provider) on any house I am serious about making an offer on.

It could also be that there jut isn't cash flow opportunity in the area you are looking.  If so, you need to find a new area to look.

Kelly

Jordan H. · Answer

I'm a DC investor and I use the same guidelines you do. I however was not aware of rentometer.com and will certainly make use of that resource. I usually have a good feel for rents but often use Craigslist to verify.

I feel that the 50% rule is quite conservative due to the higher rents. I have not gotten to the point of looking into expenses for a particular property however.

What types of properties are you looking into? Which areas of DC?

Mark K. · Answer

Thanks everyone so far. Would still love more feedback. Is what I'm doing right? How does it compare to your quick analysis for rental properties?

Will Pritchett · Answer

maybe consider paying a realtor a nominal fee for rental comps as you get areas narrowed down. There are a lot of realtors but not a lot of highly successful ones. Some would probably be happy to make a little cash for a few minutes worth of work. Just a thought.

Carlos O. · Answer

Don't forget to look at deferred maintenance on a property. You may run in a property that looks good now, but then find that you may need to replace certain expensive items in a few years. Then the property doesn't look so good after all.

Will Koederitz · Answer

I've heard good and bad about rentometer.  I would use zillow to show other units in the area you're looking at, see what they previously rented for and compare square footage, etc.  Also, if you have a real estate agent, they can provide comps for previously rented units near the unit you are considering that are on the MLS.

50% is conservative but I think it depends on the property.  You need to see what type of property, how new, how big, to really factor in potential issues and their cost.  I think it's best to narrow properties down on other criteria, then factor in what expenses you believe the property may have.

Am I doing my quick 5-minute rental property analysis properly?

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