How to Analyze a Deal

[Ali Hebert]

My boyfriend and I are new investors looking to purchase our first property. We have been following the bigger pockets outline of how to analyze a deal but when we run the numbers, it’s seems like none of the properties we look at are “deals”. We realize not every property is an instant cash flow but we are stuck in figuring out if it’s our analysis of a deal or if in fact they really aren’t deals at all. We are looking for a single family to first live in for at least a year and then rent out. We are concerned we aren’t analyzing correctly. Here is a recent example:

Single Family 129900
Rental Income: $1250-$1300

Taxes: 120

Insurance: 50

Vacancy/Repairs/Capital Expenditures: 5% each=$62.50 each

Property Management: 5% each=$62.50

Water: $75-$100

Garbage: $15

Utilities: 0

PMI: $10

OPERATING EXPENDITURES: $655

MORTGAGE: 30 years@ 3% down and interest of 3.5%

Mortgage and Operating Expenditures= 1481(?)

Rent 1250-Operating Expenditures 1481= (negative cash flow)

We are continuing to get negative cash flow and a negative ROI...

What are we missing?

[Carl Moore]

Ali,

I am new to BP myself but had my RE for a little bit. So, looking at your numbers I am little confused on how you came up with them. I came across a good form for crunching numbers as they make you look at it from the point of what you are providing for the rental. The information can be found in the Book "What Every REI needs to know about cash flow" by Frank Gallinelli. One thing to keep in mind, when looking at a live-in then rent-out, consider what you are willing to pay and what the renter is expected to pay. For example: The Electrical bill; if there are separate meters, the rental can pay, otherwise you will need to keep it as an expense. For most SFH, utilities can be gotten by the renter, just let the utility company know that it is a rental. They might be able to set up a main account with a sub account for the renter. This way the renter pay the bill during the lease but it reverts to you after they move out. Something to look into with your utilities.

Looking at your numbers, I went and put them into the spread sheet (attached). Along with adding some of my own numbers to help you evaluate REI in the future. I hope this helps.

Be Safe,

C Moore