Deal Analysis - Am I doing this wrong?

Question

Hello and thank you for putting up with my rookie question. I'm trying to get a rough idea of if I can even get basic numbers to work before I start looking more seriously into some deals. As I look around the Austin area, it seems there are a few places where I can get a property for the mid $300,000s and charge a little over $2k for rent. With these basic numbers, I'd be losing hundreds a month. Am I looking at this the wrong way? How do so many other people seem to be able to do this? Was it because they purchased before interest and home prices shot up?

Thanks again for helping a newbie out.

Nick B. · Answer

Rent is less than 1% of the all-in cost. It won't cash flow. Also, your insurance is way too low but your repairs are too high provided that you spent $10K to fix everything.

Aaron Gordy · Answer

@Casey Decker It's simple. You are looking at it wrong. To say in general, that there aren't any deals on the mls that doesn't cash flow is simply not true. One of my agents has a listing right now that will cash flow..single family house. The owner doesn't want to be a landlord.

Bryce Brown · Answer

Good Morning!

Just wanted to get my name out here. I work at New Western and we have a great marketplace for potential investors. If we talk a little bit more I can send you properties in your desired location at your price point and we can talk numbers. I could help in making the process of finding your next project really easy. Feel free to reach out and I will help where I can.

Steve Milford · Answer

@Casey Decker

Without the learning curve of acquiring properties... you will still need a learning curve of evaluating more and more. Maybe set a goal evaluating 50 properties? Most people get antsy and can't wait that long, but if you do you will find better homes than others. The only cost in looking at 50 homes is the time and gas in looking. But you'll be learning at the same time. I know when I look for my next property that I will need to look at a gob. Personally, I like dirty houses, as they usually have hidden potential behind all the dirt and stuff. What's a few trips to the dump?

But coming out if the gate with a -$500+ monthly cash flow is not good. That's just a huge headache. Don't fall in love with a house, fall in love with the numbers.

Chris Webb · Answer

I just use Rentometer.com for quick analysis, I always verify with a local property manager after the initial review.

Casey Decker · Answer

Helpful videos @Chris Webb, thanks for sharing. How are you determining rents?

Good suggestion @David Lambert. I'm mostly trying to learn if I can get into this without having to hustle on the deal side. I know a lot of people keep a tight pulse on the market and I just don't want to get into that game, but I do get excited about efficiently managing a property and think I can make my return there. So mostly trying to determine if you can currently get a cash flow positive property around Austin without the learning curve of acquiring properties.

David Lambert · Answer

Are the deals you are trying to pencil out coming from listings? Have you thought about trying to wholesale and then rehabbing the properties into long term rentals?

Chris Webb · Answer

@Casey Decker it might help to get really good at identifying certain numbers right away when looking at a property. Check out the "Invest LYH" YouTube channel for some videos showing quick, back of the envelope cash-on-cash analysis. I have gotten so good at this, I can evaluate a property as soon as I see it on Zillow. It is not the final step, but it can help give you a quick filter to know what properties you should look at further. Good luck.

Casey Decker · Answer

Thanks for the quick feedback! It looks like insurance is too low and repairs are too high, but the way I am assessing is mostly in line. Being new to this, I was assuming that maybe 20% of properties would cash flow (and if I  hustle I can find more), but it seems like the reality is that it is much less than that. I'm still surprised at how many people it seems are getting in to single family in the Austin area.

Aaron Gordy · Answer

@Casey Decker

Insurance is too low. Property taxes seem quite high. Why are you factoring in cap ex and repairs, if you spend 10k on repairs?  That property isn't a good one...

Deal Analysis - Am I doing this wrong?

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