Help! I'm bad at math or doing something wrong
Hello BP,
I have two properties and looking to purchase a third. I keep doing the numbers and feel like the numbers are showing bad deals, but it doesn't make sense to me how they can be.
I know I need to re-read some of the books, etc. but advice will be greatly appreciated! Am I misreading this, and it's actually a good deal? Am I improperly estimating the expense and income increases that's affecting profitability? Looking at the numbers CAPEX and repairs add a huge amount to the monthly expenses.
For instance, this third deal:
Monthly Income: $1,100
Monthly Expenses $1,134.14
Monthly Cashflow: -$34.14
Pro Forma Cap: 5.22%
NOI: $5,215
Total Cash Needed: $11,050
Cash on Cash ROI: -3.71%
Purchase Cap Rate: $5.73
Sale Price: $91,000
Closing Costs: $2,500
Renovation Costs: $4,550 (5%)
TOTAL PROJECT COSTS: $98,050
Down Payment: $4,550 (5%)
Loan Amount: $87,314.5
Loan Points: $864.5 (1%)
Amortized: 30 years
Interest Rate: 5%
P&I: 468.72
Total Cash Needed: $11,050
Property Taxes: $2,184/yr
2% Rule: 1.13%
Initial Equity: $12,685.50
Gross Rent Multiplier: 6.89
Debt Coverage Ratio: 0.93
Expense Increase: 4%/yr
Income Increase: 5%/yr
Property Value Increase: 4%/yr
Cash on Cash ROI: YR1 (-3.71%) YR2 (-0.63%) YR5 (2.64%) YR10 (9.76%) YR15 (31.56%)
Annualized Total Return: YR1 (2.48%) YR2 (22.27%) YR5 (26.37%) YR10 (26.47%) YR15 (22.20%)
Total Profit if sold: YR1 ($274) YR2 ($5,469) YR5 ($11,251) YR10 ($24,701) YR15 ($70,982)
Expenses:
HOA: $82
Insurance: $66
Taxes: $182
MTG: $468.72 (@5%)
TOTAL: $798.72
Vacancy: $110 (10%)
CAPEX: $190/mo (~2.5%)
Repairs & Maint: $380/mo (5%)
TOTAL EXPENSES: $1,478.72
These expenses are different than the $1,134.14 mentioned early on. That number was used and still gave a negative ROI, etc. meaning the current numbers you see just above make the picture even worse.
Please advise, and thanks!
Rick