3 Family analysis in MA, first property...

[Kyle Meath]

Hello,

This is my first property and I would like to get some input from all of you who are way more experienced than I am. I am looking to buy and hold for positive cash flow. I am a contractor so the repairs and maintenance I will be handling myself.

• Purchase Price: $195,000
• Closing Costs $3,000
• Down Payment(25%):$48,750
• Terms: 30 years 4.75%
• P and I: $763

• Rents: $2700, Annual: $32,400
• Vacancy(8.3%):$2700
• Prop. Taxes: $3,100
• Prop. Ins.: $1,800
• Repairs(Not Much Needed): $3,200
• Utilities(Water, Common areas electric): $1,500
• Maintenance(5%): $1620
• Lawn/Snow Removal: $1200

• Total Operating Expenses: $12,520
• Net Operating Income: $17,180
• Annual Debt Service: $9155
• Cash Flow: $8025
• Cap Rate: 9%
• CCR: 16%

Am I missing anything?

Thank you for your help.

Kyle

[Shaun Reilly]

Well what metrics you care about and what they should look like is really up to you.

Honestly I don't really measure CoC for things. Sometimes it is because I just do cash which makes ROI and CoC the same thing anyway and others because I kind of feel it is somewhat artificial since it will shift based on how much leverage you can get. Sure cheap money that makes your percentage returns go up is great but you also can over lever yourself which is quite bad.

I am more concerned with the actual cash flow I am getting. I usually say I want at least $150/door (this should not be ambitious). In this case that would be $450/month or $5400/year. This is actually quite a bit less than your initial calculation. If you smooth out the management and maintenance stuff you might still be in the range for that. That would also be a CoC of like 9.3% if we upped your cash to more like $58K by doubling your closing cost estimate.

So as you can see we can all just play around with numbers all night. :)

In the end you have to decide what will work for you and how you want to structure your deals. One thing that I would do is nail down any of those numbers that are guesses but you can get hard numbers, or at least solid estimates (like the closing costs from your lender) on get those as good as you can.

One more thing I would say is if you can get the price down do it. I mean it is NEVER a bad thing to pay less! Another option there is to get them to give you a closing cost credit. If you get them to give you one for $5K that will be that much less money you bring to the table (So that would increase the CoC by making a smaller outlay). In that case if nothing else changed your cash flow would be the same, but you would have more money left for other things. Getting the price down will bring the debt service payment down which will increase cash flow a little.