Deal Analysis Help!

[Chris Zeh]

Hello BP-ers, relatively new to this whole RE thing and I am trying to make sure I am analyzing deals the way experienced investors do!

I have an example of a property located in Cleveland, Ohio (Specifically Lakewood) and would appreciate some feedback on my analysis and where I can improve.

property https://www.realtor.com/realestateandhomes-detail/...

This is a duplex, and my goal here was to find the purchase price that would yield a Cash-on-cash ROI of at least 10%.

I have attached a picture of my analysis:

Assumptions made during analysis: closing costs: 3.5%, pre-rent holding costs: 2 months worth of income, pre-rent repair cost: 10,000, repair monthly expense: 5% (IF THESE ASSUMPTIONS ARE ILL-ADVISED PLEASE LET ME KNOW!)

Ultimately I am looking for an experienced investors analysis to answer the questions seen at the below:

1. what price would you pay to achieve a 10% COCROI?

2. Based on a purchase price of 77k, how close is my NOI and CapRate?

3. How far off would you say I am in pre-rent repair cost?

4. other tips for a newbie!

Please help, this would be largely appreciated!

Chris Zeh

[John Leavelle]

@Chris Zeh

I invest in specific zip codes and neighborhoods.  I continuously research the market in those areas.  Class of neighborhood, schools, crime, types of rental properties, rental rates for each type, ALL sales in the market, etc ...  This includes utilities operating in the area.  

I conduct my analysis in three phases.  After a property is identified through “Driving for Dollars “, searching websites, or lists sent from my Realtor I will do a quick 10 minute analysis.

Phase I:  Quick analysis.

Does the property meet the 1% rule based on List price and stated rental income. Will the property provide a minimum of $100 Cash Flow per unit using the 50% rule (I actually use 55% to be extra conservative). I also use conventional lending with 25% down payment, 4.5% APR/30 years for this analysis. If it doesn't meet these ruff requirements I move on to the next property. If it passes I I do a little more thorough analysis.

Phase II:  Proforma Analysis.

I have my Realtor obtain as much information as possible from the Seller. Anything not provided I will use may researched data. I include all possible expenses (including such things as Pest management, Legal, and Accounting). I will walk the property with my Realtor making a list of obvious repair items. From this list I develop a tentative SOW (based on the checklist in J Scott's "The Book on Estimating Rehab Costs ") for my contractor to create a Rehab bid/budget. We create an ARV based on the most recently sold comps in the area. I use the BRRRR strategy as my primary investing method. So the properties I buy are distressed. Here's how I determine my MAO. These require non-conventional financing (Cash, Hard Money, Private Money) and doing a Cash-out Refi later.

ARV x 70% = All-in Costs basis

All-in Amount - Rehab Costs - Closing Costs - Holding Costs = MAO

If needed repairs are not as extensive, then, conventional financing would be used up front.

Phase III:  Due Diligence Analysis 

If the offer is accepted I would schedule a property inspection to determine what the current condition of all major components and appliances are in. From this report I finalize the immediate Rehab costs and develop a more accurate CapEx reserves requirement. We confirm all previous data collected as well as complete all other due diligence items.

I also want a minimum of 10% CCR for non-BRRRR deals. BRRRR returns tend to be infinite if done correctly.