[Calc Review] Do my expense estimates seem off?

[Phillip Poyhonen]

Hey All,

I'm new to real estate investing and still trying to learn how to accurately estimate expenses prior to reaching out to a realtor. I have a lot of interest in the Phoenix market, but most of the deals I've looked into seem to have negative cash flow. I'm not sure if these are bad deals or if I'm underestimating revenues / overestimating expenses. Any feedback would be greatly appreciated.

Thanks so much!

Phil

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*This link comes directly from our calculators, based on information input by the member who posted.

[Wes Blackwell]

@Phillip Poyhonen

Looking at this property in Phoenix, first thing is the rents are way too low. I bet you could easily get $750/mo. Especially if you got rid of that hideous green paint! Yuck!

If you have the dough, I'd renovate one unit at a time. Fix everything in disrepair and do all the cosmetic fixes... paint, flooring, and spruce up the kitchen and bath a little. No need to go top of the line. $5,000 can go a REAL long way in a 600 sq ft unit. That would easily allow you to get max rent and possibly lower the repair / cap ex reserves since you're fixing a lot of stuff up front. Pay it now or pay it later, but either way you're paying it. I suggest doing it up front if possible.

And don't use the 50% rule for expenses... totally varies from market to market, price range to price range, etc. You think a home that rents for $2,000/mo has $1,000/mo in expenses? No way!

Using this loan calculator here --> https://usmortgagecalculator.org/ with a purchase price of $425k and $85k down and a 5% interest rate your PITI will be roughly $2,400/mo.

If you can get rents at $750/mo, that would be $3,000/mo in gross income. That leaves you $600/mo between gross income and base expense (PITI).

You estimate putting $50k towards repairs, which means these units should be TOP OF THE LINE by the time you're done with them ($12.5k per unit) so your rents could even be higher if these units are all cherried out.

Big thing about this one is the property has been on the market nearly 6 months... so it's overpriced for sure.

The fourplexes just on the other side of I-10 sold for $250-300k... yet these two up top (including yours) are asking $400-500k??!?! WTF?!?!?!

You know what did sell for $400k though? An 8-plex at 1017 E MCKINLEY ST, Phoenix, AZ 85006.

So ultimately, you've got a case of seller/listing agent pulling an asking price out of their rear end and completely ignoring reality.

You get this for $300k (what it's worth -- or less) and your PITI drops to $1,555 and suddenly this deal makes a whole lot more sense.

Hope this helps :-)