Please Help!- may be using the analysis tools wrong?

Question

Hello everybody. I have been conducting my first analysis on a quadplex and I think I may be doing something wrong. After I put in all my numbers and edited the report (the purchase price) about 15x I found out I would have to offer $115,000 less than the asking price to get ~$400 a month in profit. (The asking price of the quadplex is $250,000)

The amounts that I think should most likely stay the same are:

Rent: 2675 (provided by owner)

Garbage: 70 (owner currently spends this per month)

Monthly insurance: 160 (got a quote from USAA)

Property Taxes: 390 (owner pays this per month)

Mowing: 25 (owner stated about 100/a year but that seemed super low so I went with $25/mo)

Vacancy: 8%

Repairs and Maint: 5%

CAPEX: 10%

Property Management: 10%

Annual Income/PV/Expense growth: 2%

Sales expenses: 9%

I'd like to take advantage of the VA loan and just provide 10% down payment.

I assumed a 4.3% interest rate on the loan, but I'm not entirely sure about this one.

I put $3000 in repairs because one of the units may need new carpet/paint when they move out.

The way I calculated the PMI was since its a VA loan I read its 1.25% of the loan amount if doing a 10% DP.

Here is the link to the report I made:

https://www.biggerpockets.com/calculators/shared/7...

Would somebody (hopefully multiple somebodies) take a look at my math and my report and tell me what I'm doing wrong?!

Thank you in advance!

Isaac S. · Answer

Hi Alisha,

The problem is you only did it 15 times...its the 16th time where it all comes together. Start with the asking price and don't forget the closing costs. Best to take a break and come back at it fresh. Dont get frustrated, only numbers.

Christopher Phillips · Answer

@Alisha Burgfeld

If you look at the annual numbers, they are about the same.

When you put in the purchase, you need to put in the correct one.

The expenses are generated off the rental income, so those don't really change.

So, you were  tweaking the purchase price/loan amount. So, instead of a loan payment around $1,000, you forced the loan amount down to $601. Everything else stays the same since you weren't changing the rental income.

The purchase price is the purchase price. Yes, you can try to get it at a discount, but to see if it's worth pursuing you have to start with "known" numbers.

If it doesn't work borrowing 90% LTV, you can see what it looks like borrowing 85%.  Your cash flow will improve, but ROI will decrease.

Right now, with no hiccups, it's running a little thin. Even if you got the house at $240,000, that still only gets you $78 per month.

Alisha Burgfeld · Answer

Thanks for showing me that @Christopher Phillips but I still don't understand what I did wrong in my calculations with the analysis tools? Do you spot my error?

Christopher Phillips · Answer

@Alisha Burgfeld

Used your numbers.

At $240,000 purchase, barely looking at $34 per month cash flow.

Probably looking around $230,000 sales price to get your monthly cash flow to be positive $134 per month.

The other option would be to put more money down.

Alisha Burgfeld · Answer

so maybe I wasn't clear @Cesar Sabio They are asking $250,000 which is about the going rate around here (hence the ARV of 240,000. I kept all of the items listed above the same except the Purchase price (I kept lowering it until I could get it close to the $100 profit per month per door) this amount landed at 135,000. So I would essentially have to pay $115,000 less than what they're asking for. Unless I'm doing something wrong?

I am putting the 10% in for property management because I will be moving out of state in a little over a year and will need a PM.

Also, you're correct about the PMI, but I just replaced it with what I calculated the funding fees to be based on the loan amount.

I did the calculations however many times it took to find out the purchase price I would need to pay to get to my $400 profit per month @Christopher Phillips and @Isaac Slaughter.

I see that it falls near the 2%, which is great, however I couldn't reach $400 profit until I reduced the purchase price significantly.

Is that more clear?

Cesar Sabio · Answer

I am sorry I am confused your report says a purchase price of $135,000 and a total project cost of $138,000. That's what I am basing my answer off of. Your ARV is $240k.

Cesar Sabio · Answer

Hi Alisha,

After looking at your report it looks to me your being too aggressive on some of your expense lines. I agree that for sure we need to take every expense into account when dealing with investment properties, but I am just curious where are you getting your metrics from. Is this your 1st property? If so, why not manage the 1st one one your own that would bring +$267.50 back to you or if you want to build the discipline for future properties leave the PM expense and pocket that money towards your cashflow and at least your already practicing deducting for future PM needs.

Also, if you are taking a VA loan you don't pay PMI. I know this as I have used the VA loan and PMI is not needed, one of the wonderful things about the VA loan. With that being said thats another +$150.00. You could probably also play around with your other expense lines to create yourself some more cashflow. I understand your trying to be conservative and it is better to deduct after purchase than it is to increase expenses after purchase. I'm just speaking from where I stand, I don't know your market enough to determine everything, but from a first glance that's what I see.

I do see though you will be generating some good rental income from this property, and your almost falling in line with the 2% rule which is right where you want to be. Best of luck to you!!

Cesar

Christopher Phillips · Answer

@Alisha Burgfeld

@Isaac Slaughter

I agree with Isaac. You have start at the top with the purchase price of $250,000. Otherwise, the rest of the analysis doesn't work. Your down payment (10%) would then more like $25,000. That also means your monthly payment will increase.

Please Help!- may be using the analysis tools wrong?

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