Updated almost 8 years ago on . Most recent reply
Analysis Paralysis - Please Help
Hi BP Community:
I am about to finally purchase my first SF rental property. The investment doesn't pass the 2% or even the 1% rule (hard to find these days) but the overall performance looks better than what I have found and analyzed so far. The property is in a college town in mid-west (very low vacancy rate, very high rental demand), tenanted, 4 master bedrooms, each room is rented at $500 a month (a total of $2,000 monthly income). This is a relatively new construction (2016) and the seller just accepted the offer for $210K. Utilities are paid by the tenants. I am planning to take a loan with 25% down payment. Here is a summary of my analysis. I appreciate any insights or comments. Please let me know if I am missing anything and how you rate this investment. Thanks!
| Performance | |
| Total Cash Needed | $56,500 |
| Monthly Income | $2,000 |
| Monthly Expenses | $1,560 |
| Monthly Cashflow | $440 |
| Pro Forma Cap Rate | 6.9% |
| NOI | $14,580 |
| Cash on Cash ROI | 9% |
| Purchase Cap Rate | 6.9% |
| Yield | 14.0% |
| Debt Service Coverage Ratio | 1.57 |
| Purchase Estimates | Amount |
| Purchase Price | $210,000 |
| Purchase Closing Cost | $4,000 |
| After Repair Value | $210,000 |
| Estimated Repair Cost | $0 |
| Loan Details | Amount |
| Down payment of purchase price | 25% |
| Loan Interest Rate (%) | 4.250% |
| Loan Amount | $157,500 |
| Amortized Over How Many Years? | 30 |
| Income | Amount |
| Total Gross Monthly Rent | $2,000 |
| Fixed Landlord-Paid Expenses | Amount |
| Electricity | $0 |
| PMI | $0 |
| HOAs | $0 |
| Property Taxes | $215 |
| Water & Sewer | $0 |
| Garbage | $0 |
| Monthly Insurance | $90 |
| Other Monthly Expenses | $0 |
| Variable Landlord-Paid Expenses | Amount |
| Vacancy (%) | 5% |
| Capital Expenditures (%) | 5% |
| Repairs and Maintenance (%) | 5% |
| Property Management Fees (%) | 9% |
Most Popular Reply
I don't see anything missing, and I agree with the math. Overall I like it. If 9% and $440 is good enough for the $56k that will be tied up then do it.
The only two risky things I see is 5% vacancy realistic with college students? What about during the summer? The other one is expenses are at 40%, which seems justifiable with new construction, but maybe run your numbers with 50% expenses and higher vacancy to see if you could weather that storm.
Good luck!