Numbers: what am I missing?

[Dylan Grabowski]

Looked at a property this weekend in Fruitvale (Oakland area), within walking distance to train, nice quiet neighborhood.

Price: $600k

Unit 1: 3 bed/1 bath renovated and vacant, really nice unit, open and airy, 1,150 sq ft. $2,600/month.

Unit 2: 3 bed 1 bath, current tenant says they'll "leave by May", unit is thus far sight unseen, 750 st ft. $1,400/month

Gross Operating Income: $48,000

Expenses: $13,395

Net Operating Income: $34,605

FHA downpayment would be $21k. I'm a first time homebuyer... Seller willing to accept FHA.

This is one of the first few deals I'm evaluating, what am I missing? Seems to good to me, good cash-on-cash return...

It'd make most sense to rent the renovated unit for $2,600 a month, and live-in/renovate the second unit once the long-term tenant "moves" in May. Of course, tenant may not move. 

So, BP. What am I missing, not thinking about, or what do I not see if this is a good deal?

Thanks!

[DG A.]

Hey Dylan, 

Generally speaking, I think it's a good idea to look at your cashflow from a monthly perspective not yearly. That said...

What's your total PITI (principal, interest, taxes and insurance and PMI)?

Rule of thumb when calculating cash flow you want to set aside 1 month of the year's rents as your vacancy expense (8.33% of rent per month) and 1 month of the year's rents as your maintenance or CAPEX expense (again 8.33% of rent per month).

Call waste management and figure out what your garbage expense is. Then build that into your spreadsheet, considering the year's expense on a monthly basis. 

Call EBMUD, figure out your monthly expense for water/sewer.

Call PG&E figure out your monthly expense for gas and electricity. 

Also you should add 10% of your rents as an expense for property management, just incase you want to have a property manager after you acquire a few properties. This gives you the option of not HAVING to manage your own properties if you don't want to, because you built in budget for this when you acquired the property. 

Also, was the sewer lateral done? If not, who's going to pay it? Most likely, the seller will negotiate for you to pay it, and if he does are you going to have enough money left over after your downpayment and standard closing costs to pay the additional expense of the sewer lateral (they usually cost 6K-8K).

Calculating all this makes good deals harder to find, but it's worth it. My duplex met all of the above criteria. It really helps if you don't have to pay FHA for PMI.

Here's the spreasheet I used to model my expenses: https://drive.google.com/open?id=1hRRvso-kGpMVd0tF... ----- I modeled your scenario in there with both owner occupied and after you move out scenarios. You can make a copy of it, and play with it.

Hope this helps you ask the right questions about the properties you're considering. 

Also, if this is your first property, you should consider the loan from US Bank for First time home buyers. 

It's 3% down, not 3.5%

There's no PMI, yes seriously.

And it allows you to buy up to a 2 unit property, which is super uncommon for 3% down loans. 

They don't advertise it because it's a "community reinvestment loan" and they have a certain quota for how many loans they make for that purpose, required of US bank by the federal Gov. If you are shopping in Oakland, most of Oakland qualifies for this loan. Check it out: http://bluecollar.chatnfiles.com/projects/hcci-ks-... -- they don't advertise it on their site, I think because they don't make much money off of it. IF you're interested PM me and I'll connect you to the guy who funded my duplex.