Advice on my first ever property Analysis?

Question

I just did my first analysis on a property. I used the Rental Property Calculator. Can anyone check to see if I did it right? I got the annual property tax off of a property shark website. Here is the link to my analysis pdf and the property on realtor.com. Let me know what you guys think.

http://www.realtor.com/realestateandhomes-detail/1...

https://www.biggerpockets.com/calculators/shared/818436/9532d865-9917-4cb5-8762-3095ddc30383

http://www.realtor.com/realestateandhomes-detail/1...

https://www.biggerpockets.com/calculators/shared/818436/9532d865-9917-4cb5-8762-3095ddc30383

Max Householder · Answer

Agreed on running the numbers as a standalone investment, i.e. you not living there. If they make sense on paper that way, then you'll know if/when you move out you probably won't have to chip in every month to cover your basic costs. You won't cover your whole expenses while you live there, but like Jordan said, $200/month in living expenses is fantastic and doesn't even factor in writing expenses off your taxes, principal paydown, etc.

Your estimates for expenses seem a little low. Looks like a nice property, but your expenses only add up to ~40% (don't count your P&I as an expense). Most people use the 50% "rule" for how much revenue will get eaten up by expenses. I usually try to end up with an estimate between 50-60% expenses and if it still works for me at that point, I know I should be able to sleep well at night. It doesn't really matter where you allot your estimates to, so just bump a couple of them up 5%.

Call a couple of management companies and see what they really charge. Factor in leasing fees. If a company only charges say 8%, but they take one month's rent as a leasing fee, that 1 month out of 24 payments (2 units x 12 months) is 4% right there. If the other unit is vacant, I'd run the numbers at 15% for management in year one and see if you can live with it. That % should go down over time if you can get long-term tenants, but factor that in.

How did you determine rent? $650/month seems comparable for a 2-bedroom here (St. Louis), but I don't know the Lubbock market. $110,000 for $1300 income is a pretty decent deal and beats the 1% rule so kudos there, but make sure you can actually hit that number. If you just got it from the listing, don't believe it. You'll see listings all the time that are like "below market!" "could easily raise rents!". Yeah? Then why didn't the current owner do it? Check Craigslist or Rentometer.com to get an idea of a good estimate.

For a first time running the numbers, it looks pretty good! I feel like most of the first ones I ran the numbers on were so deep in the red I thought I'd never find one that made sense.

Jordan Sutherland · Answer

I think it's a good idea to run the numbers this way, because it gives you a good idea of what your cashflow will look like when you move out. To calculate cashflow for a househack just take away half of the rent and what you're left with will be your monthly cashflow. It will most likely be nagative on a duplex, but if it's only negative $200/month, for example, then that means your personal housing expenses are only $200/month. That's pretty good! Also, the price per square foot on that place is a little ridiculous for a duplex in that area. I purchased a similar duplex a few blocks away last year for $34/sq ft. This is literally double that. That's probably why it has been on the market for so long. (The listing was terminated after a couple months and then relisted a few days ago). Also, I found you want to know exactly what the annual taxes are just go to www.lubbockcad.org and do an address search to get that as well as some other info.

John Claborn · Answer

If you're going to househack, rents likely would not be the full $1,300. If you have a roommate, you're likely looking at $650 for A and $325 for B. You're still covering expenses, but the cash flow decreases significantly. Moreover, that particular area of Lubbock is not highly viewed by investors. It's in a pretty rough part of town. Tenants are likely to be a little more cumbersome than other parts.

In Lubbock's market, duplexes and any rental are hard to come by. The price is good, but you might want to adjust numbers to compensate for a decrease in rents if you live in one side, which you'd be required to do to secure 3.5% down. I agree that the interest rate seems low as well. I'm closing on an investment prop Thursday at 4.125% on a 15 year note. The 30 year was 4.75%. So you might check that as well.

Brian Egr · Answer

Just speaking for myself I base cap ex on what I know I'm going to have to do in the next 5 years...Roof, water heater, AC, etc...  that can be up to 15% depending on what the income is, how much a roof and water heater is going to cost etc....  If everything has already been replaced on the unit because the previous owners just recently did some upgrades then 5% is fine.  In the end it's just a plug number anyway, a place holder for a guess of future repair amounts.  Nobody can tell the future, if we could we'd all be in Vegas playing the slots, not buying houses.

Dominik Makaneole · Answer

Realtor.com can give you a "quick look" at info such as tax info, price per square foot, insurance estimate, etc. etc.  I use it to get my interest in a property then I look further into it gathering actual data from .gov sites.  I'm not saying this is the best way, but its how I do it.  This also has helped me to focus my searches knowing what numbers I have to hit.  When looking at neighborhoods I'm familiar with I know what rents are so looking for properties become easier.

Tyler Clearman · Answer

No I havent seen it. But it was more of a test. I was looking for any property that i though could maybe generate positive cash flow. But its like John Claborn said. Its a rougher part of town than i would be interested in.

Stuart Chinworth · Answer

@Tyler Clearman I agree with @Jordan Sutherland, the Lubbock CAD and GIS maps can be very helpful when doing property research.

Have you seen the property in person?

Tyler Clearman · Answer

Okay thanks! That is super helpful. This property was mostly just a trial run for doing analysis. I would prefer living as close to Techs campus as possible just for my own convenience.

Tyler Clearman · Answer

Whats the best way to calculate cash flow if doing a hack?

Advice on my first ever property Analysis?

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