Analysis help please!?

Question

Hi everyone -

I wanted to see if you could help review this analysis.  A quick shout out to @Ryan Sanders for the use of his tool (I love it and can't wait to use your updated version).

So, the attached property is for sale at quite a good price relative to other sales in the area but I'm struggling to justify the return on investment.  My instinct tells me that the price is right and that it's a good buy but the numbers tell me a different story.

I was wondering if anyone would look at my analysis and help pick it apart for both the positive and negative aspects of it (particularly if you're in the Tampa or Wesley Chapel area and know the market).

Thanks for all your help.

Eric

Check it out here

*Edit to add:  I'm not looking to put lipstick on a pig - if it's a bad deal, it's a bad deal and I'm ok with that.  I'm just surprised.  Note that I think my rent estimate is low for the area but rent.com was showing $1,350 for a similar sized 4/2 so I went with worst case.

Matt Foster · Answer

You have $0.00 estimated for repairs but have an AVR of $21,000 more than purchase price.  Is this property for sale on the MLS?  How many days on market?  If it's been for sale for any amount of time and still available I would assume you'll need to make some repairs to get to your AVR.  If it truly doesn't need any repairs why hasn't it sold yet at that price?  Just want to make sure it's not a too good to be true type of purchase.  Good luck!

Steve Bracero · Answer

@Eric Hildebrand

For rents two ideas:

1. craigslist in your area search the zip for a 1 mile radius, will give you some help

2. rent o meter, purchase the 1 day pass which gives you access to the rents within the selected radius, this will give you a better understanding of the rent, but does cost money

Rent needs to be very close to market value and can mess up your entire numbers if you have these too high.. always better to be conservative here. Look at rents in the area by sq feet and the bed/bathrooms. Also, the closest proximity to your homes location.

Eric Hildebrand · Answer

@Matt Foster - I'll have to factor in some repair costs as you and @Joshua Sclafani state.  I really appreciate the feedback - that's why I'm reaching out.

I'm not really in this to lose money for a couple of years - I love your point about the newer construction impacting appreciation on older homes. New construction probably also puts downward pressure on rental rates for older properties too. Solid point.

I like the area because there is appreciation potential but I'm not looking to buy into a property that I struggle to make cashflow.

I'll double check the rental rates - if anyone has any recommendations on best approaches to researching actual rental prices in any given area, that'd be fantastic.  I'll look at previous forum posts for some thoughts but if the topline numbers are off, that blows my entire analysis up. Even if the other estimates are reasonable, which I believe they are, then it really comes down to rental income and what I could reasonably expect for such a property.

Joshua Sclafani · Answer

Some things that jumped out at me: (1) there are always repairs, set aside a few grand (2) the lowest mortgage rates on rental property I have seen are above 4% you should call a broker and verify your rate (3) and my closing costs are always more than $3k. My advice is to be prepared to lose money for the first couple of years on a property with margins this tight. Yes, Wesley Chapel is growing but there are a lot of newer construction homes which will make an older home (assuming this is older) slower to appreciate (unless it is historic and has desirable traits). Good luck!

Ryan Sanders · Answer

Glad the tool is helping you out :)

Eric Hildebrand · Answer

@Tyler Wehrung - The purchase price is $130k - running comps now for ARV but would expect at least $150k - no significant repairs needed.  Goal is buy and hold.  I'm not sure why the link isn't working for you but I'll look into it!? Thanks for the response.

@Michael Key - I definitely don't think that $54 dollars/month or the reported COC is a "good deal."  I guess my big question is what the hell am I missing? Are my estimates too conservative or is that just the way it goes when you look at these prices?  I suppose being certain of the rent prices/comps will make a big difference in the assessment.

The property is in Wesley Chapel which is growing pretty quickly.  Not many properties in the area for that price.  I bought my personal residence there for $118k FSBO three years ago (appraised at $103k) and that was practically the only property I found at that price point. My residence appraised a few days ago at $145k.  The subject property is 300sq/ft bigger with an extra bedroom compared to my residence.

Michael Key · Answer

Purchase price isn't bad for a 4/2 in Tampa. What area? The COC return is 2.25% and it cash flows $54 dollars. Not really my idea of a "good deal". But it might depend on your own goals. If the rents are going up in the area, and you are buying to hold, it might be a good idea. Maybe more so if home prices are going up and not down. Depends on your goals. I always say trust your gut though.

Tyler Wehrung · Answer

The link isn't working for me, what is the purchase price? ARV? and your goals - buy and hold, flip, BRR?

Analysis help please!?

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