Advice on First Deal Numbers/Analysis

[Ian Livaich]

Hey everyone,

I am considering putting in my first offer on my first property wanted to get everyone's thoughts.  This is a duplex in a very desired area of South Jersey with easy train access to Philadelphia.  The duplex is a class B-/B property in a B+/A- area.  

All feedback is welcomed.  If some of my numbers are not realistic, please do not hesitate to let me know.  I appreciate your honesty in advance.

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OFFER SPECIFICS

• Listing price = $230,000
• Potential Offer = $175,000
• Expected renovation costs = $50,000
• ARV = $300,000 (this is a conservative estimate and could be closer to $325,000 depending on rehab level)

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INCOME

• 3 Bedrooms = $1,800/month (includes water and sewer in rent)
• 2 Bedrooms = $1,400/month (same utilities included)
• (1) 2 Car Garage = $0 (My agent says I could rent this for $150-250/month but I wanted to be conservative and exclude it)

TOTAL INCOME = $3,200/month or $38,400/year

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EXPENSES

• Taxes = $808/month
• Insurance = $110/month
• Utilities = $0 (built into rent but I am still exploring doing RUBS for water, sewer, and heat)
• Landscaping = $0 (built into rent)
• Capex (6.25%) = $200/month (I usually use 7-8% but lowered this because of the high rehab)
• Repairs (6.25%) = $200/month (same reasoning as capex)
• Vacancy (6%) = $192/month
• PM (8%) = $256/month (we will be self-managing)

TOTAL EXPENSES = approx. $1800/month

NOI = $1400

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MORTGAGE

• Lender will finance 70% of the purchase price, 100% of the rehab.  
• Finance Amount = $172,500 
• Downpayment = $52,500 
• Total Mortgage = $225,000
• Mortgage Payment = $1,034 (assuming 25-year amortization and a 5.25% interest as the property will be held by an LLC)

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CASH FLOW

• Approx. $366/month or $4,392/year with PM 
• Approx. $622/month or $7,464 without PM

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CoCROI

• Approx. 7.5% with PM cost included 
• Approx. 12.8% without PM cost included 

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Total ROI

• Approx. 13% with PM
• Approx. 18% without PM

If you made it this far, I appreciate your time and welcome all of your comments, suggestions, and feedback.  

[Costin I.]

Ian

My 2¢:

• If you are keeping it as a rental for long term, the ARV is not that relevant (you are not going to sell it and you can't predict the FMV years from now) – you want the cashflow and ROI to be right.

• Also, you should offer based on your criteria and numbers, not “20-30% below asking price”. If your numbers/calculations are not working, doesn’t matter the asking price.

• I’m assuming “includes water and sewer in rent“ means you are having the expense for water and sewer. If you are renovating this, look into installing separate meters. If not, you need to factor that into your expenses.

• There is no such thing as “built into rent” – if you have the expense, you need to list it and factor it into your calculations – you are missing utilities and landscaping

• You will have closing costs

• You have a mistake in your mortgage calculation: 225K @ 5.25% for 25 years = $1.348/month, not 1,034. With that, your cash flow is negative.

• If only 172.5 is financed and you have to come up with 60K (52DP+closing), then the mortgage payment is $1,034. Annual cash flow $127.