Deal Analysis Help - newbie!

[Paisley H.]

I found a quadplex for $300,000. Rent is $3080, so it meets the 1% rule. I would put 20% down for 30 years, so it would cash flow about $288/mo by the 50% rule (less than the ideal $100/door). But it was built in 1998 and is in pretty good condition, I don't think repairs will be excessive.

The thing is, when I enter it in the Bigger Pockets rental property calculator, I can make it look great or I can make it look awful by adjusting the %s for capex, repairs, and vacancy. At 5% vacancy, 5% capex ($154/mo), 5% repairs ($154/mo), no property mgmt, the return is over 6% and cash flow is good. But increase the capex and repairs from 5% to 10% and it goes negative. 

I just don't know if I'm overanalyzing this, it meets the 1% rule, it's a nice property in a good area. Should I wait for a better deal? I could purchase two turnkey properties for the same amount that would cash flow a similar amount, according to the turnkey company of course. And I think the turnkey SFRs would be easier to sell in an exit strategy scenario and would be more likely to appreciate.  

[Ben Wilkins]

@Paisley H. - you are certainly not over-analyzing, but are instead doing the correct research.

As @Justin Owens pointed out, the 1% rule is just a rule of thumb that is used for quick estimations. It's a lot quicker to evaluate a property to determine if it meets the 1% rule, than it is to calculate all of the expenses. If a property passes the 1% rule, then it may be worth looking further into - that's what the rule is intended to be used for.

Just about any deal can be made to look good by the numbers, but it may turn out to be a disaster later on if you don't account for expenses (especially maintenance and CapEx). Don't fudge these percentages in order to justify a purchase. Instead, let the numbers convince you that the purchase is worth it.

A better approach when manipulating numbers is to decrease the purchase price until you get to the cash flow, Cap rate, ROI that you want. Once you find a purchase price that makes your numbers work - that is when you know how much the property is worth for you.

Don't play with the CapEx to make a property "work" - instead, find the purchase price that makes the property worth it to you.