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Updated over 10 years ago on . Most recent reply

User Stats

12
Posts
1
Votes
Kayla Joachim
  • New to Real Estate
  • Minneapolis, MN
1
Votes |
12
Posts

'First Analysis-4plex in Minneapolis

Kayla Joachim
  • New to Real Estate
  • Minneapolis, MN
Posted

You can read more about my investment partner and I on the new member forum, 'New Investor from Minneapolis'. Suffice to say, we are two 23 year olds looking to purchase investment property. We found a property listed on zillow, for sale by owner. Built in 2002, it is a fully rented four plex (one unit is month-to-month so we would move in there).

Current asking price: $495,000 (though originally listed at 474k, he upped the price after 16 days)
Days on Zillow Market: Over 100
Reason for Selling: To either purchase a SFH for himself and his GF or buy a commercial property, possibly storage units

Rents: 4,400 monthly (Owner said 2 units could be easily increased by $50 to $75 each)

Expenses (annual)
Property Taxes (assessed 2014): 7,754
Insurance: 3,000 (guess)
Maintenance & Repairs: 4,200 (guess)
Utilities: 4,500 (average for last 18 months from water company, owner currently pays water/sewer/trash but there are separate water meters so we would look into passing this to the tenants as the leases expire)
Advertising: $150 (only advertising is for new tenants when leases expire)
Administrative/Misc Costs: $150
Mortgage Insurance: $6,501 (from mortgage broker at 490k loan level)
Snow Removal: $1,500 (as acountants, our busy season is during the winter and we don't have the time or patience to deal with this, there is a sidewalk + steps + driveway and back parking area to be plowed)
Lawn Care: $150 (supplies fund, we will mow it ourself, first year expense of a lawnmower not included)
Mortgage: 26,579 (FHA, 3.5% down, 3.75%)

At 495k
Annual cash flow: $-1,684
CoC: -9.72%
NOI: 24,895
Total ROI: 40.89%

At 450k (keeping mortgage insurance at 490k loan level b/c I don't have other numbers)
Annual cash flow: 762
CoC: 4.84%
NOI: 24,895
Total ROI: 55.54%

As it stands, my numbers are telling me this deal will not work, given the $100/mo/unit minimum standard most people are looking for here.

This is the first deal that I have really looked at though as seriously buying, so I would love other people's opinions on my analysis. What have I missed? What have I under or over estimated for?

Most Popular Reply

User Stats

116
Posts
41
Votes
Will Porter
  • Investor
  • Houston, TX
41
Votes |
116
Posts
Will Porter
  • Investor
  • Houston, TX
Replied

That price looks too high. Note that your gross rents of $4,400/mo are even less than 1% of the price ($495,000). If we refer to the 2% guideline, your "gold standard" would be in the ballpark of $4,400 / 2% = $220,000. You are paying more than double that.

We also have the 50% guideline, which says that your gross rents will yield expenses of $4,400 x 50% = $2,200/mo. Now throw in your mortgage of $2,214.92/mo and that means negative cash flow. You already noted this in your own analysis.

Just using these simple rules, you should be able to tell that these numbers are not where we want them.

To make this deal work, you will need either a significant discount on the purchase price, or have some way to substantially increase rents (or both).

But remember, your goal is not to fudge the numbers to make the deal work, your goal is to find the deal that fits your numbers.

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