How do the numbers look on this 2-unit? (Beginner)

[Justin C.]

I'm analyzing a potential first deal- spreadsheet below. It is a 2-family located in MA. I'm assuming I would need to put 25% down on the purchase price. To get the rents, I used rentometer.com and then scaled down a little (average rent in the area given the bedrooms is $1960, I assume rents of $1850). I don't know exact insurance rates but allocated about 0.7% per year of the purchase price which seems to be in line with estimates I found online. Are closing costs of $6500 and $3000 of misc. improvements a good guess? There is nothing glaring from the listing/photos, but I haven't actually been to the property yet- this is just a preliminary analysis.

The thing I'm really unsure about is maintenance and repair. I allocated $3000 per year- which seems high compared with what I've some people use here. The building is about 100 years old.

How are my assumptions? I tried to keep everything very conservative. Would you buy this deal? How do the returns compare with other deals? I appreciate your advice, constructive criticism, etc.

You guys who have been successful with this- what do you look for in making these decisions?

http://www.mediafire.com/?et91331w6x6gp6a

P.S. Credit for the spreadsheet goes to 123flip.com

[Tom Goans]

Justin, forget the numbers for a moment.

More importantly, the neighborhood, economy, and future are more important. What are the job opportunities - now and in the future? If there is one dominate employer, what happens should that employer go away?

Most neighborhoods have a period of decline. Where is your neighborhood in this curve?

In most neighborhood, household and personal income has declined and not keeping up with real inflation. What about this neighborhood?

The real estate market is once again flushed with amateurs pushing prices up and manufacturing demand.

Some of the old pros are already noticing a new real estate bubble being created on top of the existing one that is still settling. What are the REALISTIC chances this may be occurring in this neighborhood?

What happens when interest rates go up?

I bought land in a county when there was a lot of gas exploration and production. Now, the wells are being closed, the jobs are gone, and so are the buyers. Yet, real estate agents seem to think the land is worth the same or more. An asset is only worth what someone will pay ... TODAY. Appraisals and opinions do not buy groceries. Ask the bank that now owns a property once appraised for $200,000 and now cannot sell it for $100,000.

Be careful and look beyond the numbers.