1st Property Deal Analysis - Help?

Question

Firstly, thank you for any response to this thread :)

My realtor believes that a 2-unit 
multifamily property in CT is a good deal but I'm hesitant. I knew someone 
who's an investor that created a spreadsheet in Excel to calculate the 
ROI of a property with tons of variables.  We are no longer on talking 
terms unfortunately so I can't ask him for help using the sheet.

I'm coming out to really bad numbers, a 20% loss per year. 
Meanwhile I realtor says that there's a 7% return on investment when fully rented. Also 
states that a 10% return on investment is very rare in this market 
condition and this is a good deal.

May
 I please have a second set of eyes with these numbers using the 
spreadsheet? The discrepancy in numbers is startling and I don't know 
where or if I went wrong.

Michelle Gerac · Answer

I did a quick excel spread sheet and got numbers close to @Greg M. as well. ($972 per month - I didn't account for vacancy or water/sewer).

• Mortgage - $537
• Property Taxes - $280
• Insurance - $40
• Capital Ex - $115

The numbers look good if you're able to rent out both units, so even though you will be living in one unit, it still looks like a profitable investment in the long-run (once you move on to your next property). I guess it depends on what you're comfortable with paying right now.

Also, I don't know if you've done this yet, or what others recommend, but I would definitely get a trusted inspector out on a property that old during the option period.

Greg M. · Answer

The rent is the big issue. Is Rentometer correct? It frequently is not. The $1000 rentals may be fully remodeled and come with parking and snow removal included. Maybe $700 is accurate for your unit. Maybe Rentometer is on the low side and it should be $1150? That's something that you need to nail down. Also, I assume you understand that if you raise the rent from $700 to $1000 that you are going to lose the existing tenant. Have you factored in turnover costs and vacancy costs?

Just doing an extremely rough estimate, you have:

• Mortgage: $535
• Property Tax: $240
• Insurance: $100 (Guesstimate)
• Water/Sewer: $50 (Guesstimate)
• Vacancy 5%: $50 (Guesstimate)
• CapEx 10%: $100 (Guesstimate)

You're at $1075 a month. At $1000 rent, you're cost of living is $75 out of pocket each month.

If you want to look at it as an investment, figure out your cost of the down payment. If you put 20% down, that's $31K. Assuming you could make a 5% return on that money in another investment, it's costing you $129 a month to have your money parked there, while your monthly principal reduction is a little over $200.

Therefore, at $1000 a month rent, you're basically living free in the other unit.

Nicholas L. · Answer

@Jill Jay can you say what city this is in?  For CT, $173k for a duplex seems like you might be in a slightly rougher neighborhood.  And, if it's been sitting on the market, there may be something wrong with it, especially in today's market.

Jacoby Atako · Answer

@Jill Jay

If that's the case it's not usually going to be much profit. The goal of house hacking is to live for as close to free as possible while building your portfolio and saving for your next deal.

Jill Jay · Answer

@Jacoby Atako I'm not a numbers person but have been studying up. It is entirely plausible & likely something went amiss :(

Jill Jay · Answer

@Jacoby Atako I plugged in to account for 1 vacancy & 1 fully rented. I will be occupying one of the units

Jacoby Atako · Answer

@Jill Jay

To be really specific you'll want to estimate vacancy as well. Are you going to use a property manager?  And I didn't see insurance costs.

Add those numbers in along with your the money you plan to set aside for repairs and you'll have a pretty good idea how much this property will make you.

What numbers did you use to get a 20% loss each year?  That seems pretty hard to get to from the numbers you've given so far.

Jill Jay · Answer

@Greg M. I was going to link the excel sheet but didn't know the rules on that. First time posting here, too :)

Year built: 1911

Property Price: 173 but putting an offer for 155 (it's been on the market for over 3 months)

Downpayment: 20%, unless it makes more sense to do less & leverage. That concept confuses me a bit.

Mortgage Rate: 3.2%

Monthly rent: 700 each for both units. Rentometer says the average in that town is 1k based on comps so I plan to raise it.

Property Tax: $3349

Fees: city water & waste disposal

Updates needed are to power wash & paint/seal deck+ stairs.

Property Features: Vynl Siding, newer windows, appliances look newer, asphat roof in good shape & less than 10 years old. Water heater & furnace up to date. Bathroom & kitchen recently gutted & remodeled.

Greg M. · Answer

I'm coming out with an 8.35% return. Just kidding, you've provided us with zero numbers, so it's going to be impossible to give you any numbers.

Let's start with:

• Purchase price
• Down payment 
• Mortgage payment 
• Interest rate
• Monthly rents
• Property taxes
• Other expenses like HOA dues
• Does the duplex need any repairs
• When was it built and last remodeled

With these people can give you an idea of your return.

Bjorn Ahlblad · Answer

@Jill Jay Please tell us about your investment objectives and If you post a few basic numbers people here will give you a hand. How about purchase price, any required rehab that you know about, and expected rents would be enough. Getting into SS analysis too early just results in confusion..

1st Property Deal Analysis - Help?

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