Rental property analysis

[Justin Clemmer]

I have only just begun researching real estate investment so I've been analyzing random properties for practice, and I came across one that seems really good to me but I'm wondering what I might be missing. I've tried to be conservative on all my numbers. Here's the property https://www.redfin.com/TN/Knox... 

Location: Outskirts of Knoxville, TN 37920. I think the area would be considered B class or maybe B-. Here's the Bestplaces page.

Purchase price: $205k

For simplicity and to be conservative I will assume this is the fair market value.

Down payment: $51,250 (25%)

Closing costs: $2500 I got this number by googling "average Tennessee closing costs", seeing $2366 and rounding up.

Rehab: $0. The property appears to be in turnkey condition. 

Total cash invested: $53,750

Rent: $2400. The property is 3 units: 2/1, 2/1, and 1/1. Nearby rentals on Craigslist are $895 for a 2/1, and $700 for a 1/1. That would suggest a total of $2490 but we'll round down. It should be noted that this property is much nicer and more recently renovated than these comps.

Vacancy: $192 (8%)

Property tax: $106. City website says $2.4638 per $100 of assessed value, where the assessed value is 25% of the market value which I'm using the purchase price for. ((205,000 * 0.25) / 100) * 2.4638 = $1262 per year or ~$106/month

Insurance: $100. I googled "average tennessee homeowners insurance" and got answers from $900-1100 per year. I will use $1200/year.

Maintenance: $120 (5%)

CapEx: $240 (10%)

Utilities: $100. Tenant pays electric (which runs the heat), and this thread suggests around $40 each for water and garbage. Round up to $100.

Total expense: $858 or 35% of rent.

Mortgage: $862.98. $153,750 @ 5.5% (conservative as I have poor credit) over 30 years

Cash flow: $669

Cash on cash return: 14.94%

So what do you think? 

[Dan Beaulieu]

Nice job on the numbers! Couple tidbits: 

Your closing costs will be about double that. If using financing there would be lender processing fees, origination fees, appraisal, lender's title insurance, and some other nonsense fees. Closing costs are way less for all cash deals of course. 

Nobody recommends paying retail for a turn key property in the peak of a market cycle. I'd try to get it with a good amount of built in equity. Remember the age old saying in real estate investing is that you "make money when you buy." But if you're in it for the long haul, are OK with parting with 50K, want to grow slowly and steadily, and don't try to sell if you get upside down, then this looks like a nice little property. Knoxville is on fire right now with some big things happening for job growth, and I'm very optimistic about buy / holds there.