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Updated about 5 years ago, 10/11/2019
[Calc Review] Help me analyze this deal
*This link comes directly from our calculators, based on information input by the member who posted.
What is your strategy for this property? Did you purchase the property in April for 20k, or are you just now looking at purchasing the property?
@Jermaine Chad Ingram that cap rate is awful, like really bad. You can get homes in really nice neighborhoods with returns like that. Based on price I'm assuming this isn't a great area, also being built in 1939 comes with far more maintenance and repair costs than a newer home. Run away and never look back. Your vacancy might be a little high but the rest of it is scary especially with insurance at that price. Insurance expense alone is the full cost of the house in just under 15 years.
@Joseph High I’m just learning how to use the calculators. I haven’t bought yet but it would be to rent.
@Aaron K.
Can’t afford a home in a nice neighborhood. The calculator says that you don’t consider cap rate for a single-family home. So of what significance should it be for me? I’m really seriously trying to learn.
Would it be a useful way to compare single-family homes to each other
@Jermaine Chad Ingram yes cap rate is useful as a measure of rate of return, you didn't have a loan on this one either which would further cut into your profits. Even if you can't afford a $200k house you can find a nicer $100k or even $50k house in other parts of the country.
@Jermaine Chad Ingram, first off, your expenses look very high. Vacancy is usually ~8%. CapEx and Repairs 15% combined. Your insurance number is bonkers. Probably 5-10X what you'll actually pay. Have you spoken to a local insurance agent?
If this place sold for $19k in April, why is it worth $50k now and $60k after just a little work?
Are you planning to put any financing in place? Not the best return on almost $60k, if not.
@Aaron K. It would be a cash purchase so I didn’t add a loan. I’m only focusing on one town in eastern Florida. Where I plan to live.
So what’s a good cap rate for single family homes in lower income neighborhoods.
Originally posted by @Jaysen Medhurst:
@Jermaine Chad Ingram, first off, your expenses look very high. Vacancy is usually ~8%. CapEx and Repairs 15% combined. Your insurance number is bonkers. Probably 5-10X what you'll actually pay. Have you spoken to a local insurance agent?
If this place sold for $19k in April, why is it worth $50k now and $60k after just a little work?
Are you planning to put any financing in place? Not the best return on almost $60k, if not.
It’s been fully renovated, I would get an inspection as a part of any due diligence. I estimated the expenses at 50% which is what I have been recommended from BiggerPockets 50% for expenses before any payment of a mortgage is that not right
It on the market for $59,900. I’d offer 48,000. I think it could sell for the 59,900. But I’d only offer up to 50,000.
No intention on financing. Once I were able to build a 20% reserve I would adjust my expenses
@Jermaine Chad Ingram if you don't need a loan for this property then you have enough to afford a nicer property. For a class properties in nice neighborhoods even in a place like California you can get 4-4.5%+ For something like what you were looking at you should be in the 8%+ range; of course this depends on the area; there are places like that in Baltimore in the double digits though at least on paper.
I agree with @Aaron K. on about this - run away from this deal!
From the expenses side, your insurance is killing you. Additionally, the home is older so more likely than not you will spend more on repairs.
Also, the amount of cash needed for this deal is crazy considering your returns. You have to put down over 50% for the property to break even. That's 30k for an investment that won't cash flow!
Keep looking and evaluating, looking forward to seeing the next deal you run by!
Originally posted by @Aaron K.:
@Jermaine Chad Ingram if you don't need a loan for this property then you have enough to afford a nicer property. For a class properties in nice neighborhoods even in a place like California you can get 4-4.5%+ For something like what you were looking at you should be in the 8%+ range; of course this depends on the area; there are places like that in Baltimore in the double digits though at least on paper.
You’re awesome! I will keep that in mind.
Just to clarify I’m not buying this house I am just trying to figure out what it is I’m looking for and how to calculate it using The Calculator‘s and the assistance of kind people like you
Originally posted by @Joseph High:
I agree with @Aaron K. on about this - run away from this deal!
From the expenses side, your insurance is killing you. Additionally, the home is older so more likely than not you will spend more on repairs.
Also, the amount of cash needed for this deal is crazy considering your returns. You have to put down over 50% for the property to break even. That's 30k for an investment that won't cash flow!
Keep looking and evaluating, looking forward to seeing the next deal you run by.
The calculator I’m using says I’ll get $137 in cash a month even after putting away 50% for possible repairs and maintenance and expenses outside of what the insurance Costs are. What do you mean it won’t cash flow
Again I’m not buying this house I’m just using it for analysis
Frame house built in 1939? I would definitely avoid this. The house is going to have a bunch of mechanical and structural problems. Insurance will always be difficult and very expensive for a frame house in Florida.
Also rent at $950 for a 500 sf house does not sound correct. 504 sf would be about the size of a studio apartment, maybe a tiny one-bedroom, I don't think section 8 would qualify this as a 2-bedroom
If you have the cash to buy this without financing, I would look at putting a mortgage on a nicer home. If you don't have the W2 income or credit score for traditional financing look at hard money lenders
I wrote that without seeing the updates and after I saw them, I was in the middle of editing my original post when you responded just now. Sorry for the confusion!
If you put down around 55%, the property would break even. You are correct that if you did an all cash purchase, you would have about $137 in cash flow.
We operate in the Nashville market and our minimum cash-on-cash return is 6%.
A good resource to utilize is Roofstock. You can see what the returns are on similar properties and neighborhoods. They don't have listings in every market, but it's at least a helpful tool.
What are the cap rates for other properties in this town?
@Joseph High
4.11% - 7.22%
It seems like you've been running numbers on a lot of deals to understand the range in that area.
What attributes are consistent for those cap rates? Have you been able to narrow down your criteria for what you're looking for?
@Jermaine Chad Ingram the Cash on Cash return is terrible too. You can get 2.25% return from a high yield savings account with no risk. 2.82% CoC isn't worth the headache. Also, I echo the above sentiments. If you can buy something $50k cash, you can afford a nicer, better cash-flowing property elsewhere with leverage.