Property Analysis Practice, Can't tell if there is value

[Hunter Bentz]

I am planning to begin my journey into real estate in the coming months and I am at the analysis practice stage. I did the numbers on a property in Colorado Springs, with which I am very familiar, and I can't tell if the investment would be a good start if I were to be hypothetically trying to close on this property. The listing is at 685,000, I figured it would take about 20-30 grand to rehab the minor things in it. Estimating an appraisal of 715,000-720,000 after the refinance, the fees and taxes included and the cost per month to rent each unit I was left with just under $700 for monthly Cash Flow. However, the property wasn't showing as a 10-12% annual ROI. Now, either my math in the analysis is horribly wrong, or this is still a great investment because roughly 700 cash flow sounds great for a first-time investment. Could I get some help or advice on how others would've done the math differently? The Address is 925 Hathaway Dr. Colorado Springs, CO, 80915. Feel free to check it out for yourselves as either an investment or to just help me understand the ways to run these numbers more accurately and efficiently.

[James Carlson]

Hey @Hunter Bentz

First off, congrats on taking a big step. It's so exciting to think about that first real estate purchase. And while no place is a great place to buy for cash flow right now, Colorado Springs is not a bad place to buy for the long-term.

Now ... at the risk of sounding flippant, if you are getting $700 in cash flow, you should either A) take a hard look at your numbers or B) buy this place immediately. 

I ran some quick numbers based on 25% down payment, a 7% interest rate (that's conservative right now), $1095 rent/unit ($4,380 total/mo), 5% out for maintenance, 5% capX, 5% vacancy, and $30k in renovations. I assumed that all utilities are covered by tenants. I see a loss of about $55/mo, which truthfully is really good for this market right now. 

I've run a lot of numbers recently with investors, and I just don't see cash flow anywhere in Colorado Springs. Maybe if you're doing a medium-term rentals or short-term rentals/Airbnb, but otherwise, the mortgage rates have just crushed cash flow.

That's not to say you shouldn't buy. A four-plex at that price ain't bad, and I believe in the long-term buy and hold. You date rate and marry the price. You can always refinance into a lower rate when they inevitably come down in a year or two. And rents will go up. So those two variables mean you will cash flow pretty quickly.

Whatever you decide, I wish you the best.