First Investment Analysis Review

[Fernie Acevedo]

Hello fellow BiggerPocket pros, I'm new to the pro section and want to get your input on a deal.

A bit about us, first home we did a live-in flip. Are in our next home but want to keep this one and invest in our actual first investment. We (my wife and myself) have been running numbers on investments and for one reason or another, we stop short on pushing through which then the investment property is gone.  We use the investment calculator on here and a few others to make sure the investment makes sense but would like another set of eyes. Since this will be our actual first investment and using our savings, we're a bit skittish. We're trying to do our first one close to us but are looking everywhere if the numbers make sense.

Deal info: Duplex, 2/1 and 1/1 units.

City: Bakersfield, Ca. 

Purchase price: $280,000
Down payment 20% ($70,000)

Once inputted into the calculator this is what it spits out:

Monthly income:   $2,375.00
Monthly expense: $1,989.10
Cash Flow:             $385.90
Pro Forma & Purchase Cap Rate:               $5.95%
NOI: $16,661.70
Cash On Cash ROI: 6.34%

Seeing if by the looks of this, this is a good one or are we missing something? 

Appreciate your inputs.

-Fernie A.

[Sanjeev Advani]

@Fernie Acevedo - 

Welcome to your wife and yourself!  Congrats on moving forward even more!

Regarding the calculator, I would say this is a good way to go about looking at your investments for now, especially if you are looking at properties for yourself.  2/1 and 1/1 in Bakersfield at $280K seems high for sure.  Especially given the unit size.  The other thing to think about is this is $140K/door.  Average rent for 2 bed $1100/month.  Average rent for 1 bed $900/month.  Also seems a little high there, if the units are not rehabbed or if extensive work is done.  

Also, with the 2/1 and 1/1 have you looked into if both units are permitted?  That can cause another issue which could cost you more in the future as well and something to pay attention to.  

I assume you have around $1000 for the 1 bed and $1375 for the 2 bed, but in most cases I would say those are high estimates. Also, depending on the neighborhood this can be a very low CoC as well.

There are definitely neighborhoods in Bakersfield where these numbers are good, however, I would make sure you are looking at the right neighborhood for sure.  

Also, these are just my thoughts.  I don't want to step on anyone's toes or anything, but I do think that if this is not in a very specific location you are overpaying for this property.  

Feel free to PM me to chat further as well. 

Best

Sunny