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Updated over 10 years ago on . Most recent reply

First Potential Investment Needs Seasoned REI Review
I'm considering putting an offer on a NOO duplex in Pierce County, WA, and since this is my first time jumping into the deep end of the pool :-), I'd appreciate a review/spot check from this seasoned BP community to make sure I'm not missing anything. Without further ado, here's the annual financials:
1. Offer Price: $199K
2. Financing & Mortgage: 25% down, 30yr Fixed @ 4.625% = -$9194
3. Scenario 1 - Based on Current Below Market Rents:
a. Total Expenses: -$6152
i. Property Tax: -$2652
ii. Insurance: -$890
iii. Maint & Repairs @10%: -$2310
iv. Other Admin: -$300
v. Self PM: $0
b. Gross Income: $21175
i. Rental Income: $23100
ii. Vacancy @ 8.3%: -$1925
c. NOI & Cap Rate: $15023 @ 7.56%
d. CF: $5829
e. CCR: 9.77%
4. Scenario 2 - Based on Increasing Rents To Market Rate:
a. Total Expenses: -$6482
i. Property Tax: -$2652
ii. Insurance: -$890
iii. Maint & Repairs @10%: -$2640
iv. Other Admin: -$300
v. Self PM: $0
b. Gross Income: $21175
i. Rental Income: $26400
ii. Vacancy @ 8.3%: -$2200
c. NOI & Cap Rate: $17718 @ 8.92%
d. CF: $8524
e. CCR: 14.29%
Scenario 1 would be the current reality with Scenario 2 being the upside potential. Am I missing anything from these numbers? Does this read as a good investment on paper?
Thanks for any and all feedback.
Most Popular Reply

I use your interest rate of 4.625% as your cost of money. I would compare that with your cap rate including property management. I would want a cap rate of 7.625%.
If rent on a property is $800 per month I am going to base value on that. If rent could be raised to $1,000 per month because of my efforts I am not going to give the seller credit for the extra $200. I may give him credit for 1/2 of that.
If rent is $800 per month with a 50% expenses ratio I will value property at $62,951. I might raise the value to(( $900X12)X.5)/.07625 or $70,820.
I hope this helps.
Bill