Property Evaluation - Advice on Approximate Figures & Analysis

[Eli N.]

Hello BP folks,

I wanted to get your thoughts on the following when you crunch your numbers on properties (particularly multi-fam prop's).. How much do you compute/estimate the cost (per unit/month) when analyzing a property on the following (I live in Austin if one is wondering):

- Homeowners Insurance: Would it usually be ~ $25/per unit per month, or would that be closer to ~ $60/per unit per month? Am trying to be accurate in my evaluation to ensure some cash-flow.

- Repairs and Maintenance (not only when submitting an offer, which I assume is around ~$5,000 if in decent condition), but also year after year. Is it around ~$200 per unit per multi-plex per month (so around $9,000 per year), or is that too much based on your experience?

- Utilities: Can you not have the tenant pay Garbage, Sewer, Water, Gas, Electricity, or are you obliged to cover certain utilities?

- Accounting and Legal: How much do you estimate accounting and legal fees to cover your end of year taxes, evictions, or contracts?

Separately yet related, which are the greatest determinants for a good deal worth pursuing in your eyes, would it be the income expense Ratio (1%, 2%, 50%), would it be the Monthly Cashflow/DCR, Cash-on-Cash ROI and/or CAP rate to ensure all figures are +ive, or is it a mix per one's personal preference? In other words, what would you consider (vs. certainly disregard or certainly regard) when some of the numbers are not strong/+ive.

Thanks!

Eli

[Jay Dewberry]

Hi Eli. Do you have a particular property that you're trying to analyze? If you're (let's say) analyzing a multifamily residential unit such as a quadplex, the Homeowners Ins will cover the entire quad. Your best bet is to call around to get some estimates. Where I am, it would be closer to $75 depending on location. If using the BP Calculator, the Repairs and Maintenance are post rehab estimates, which may include...lets say...a broken window, or hole in the wall. The pre-rehab repairs are considered during the Purchase Price section. However to answer your question, many people use anywhere from 7%-12%.

With utilities, that will again depend on the property, how utilities are metered, and your local laws. 

Accounting/Legal fees are not usually considered in the calculator as it's not necessarily factored into if the property is a "deal" or not. Nevertheless, if you have approximate figures for Accounting/Legal, technically they can be added to other monthly expenses.

Lastly, investors typically consider various factors when determining if a deal is worthy or not. It depends on their investing strategy. For instance, commercial apartment investors may look for Cap Rate and IRR (Internal Rate of Return), whereas a multifamily residential investor may want to know ROI and Cash-on-Cash return. It just depends. Hope this helps.