[Calc Review] Help me analyze this deal

[Michael Doyle]

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

[Harvey Yergin IV]

Nice. Are you close to getting this property? Did you already offer? Are you pre-approved or have a lender lined up?

First thing I'd say about these calculators is that the 50% rule (and the other percentages for estimating actually) are bullcrap. The amount of capX and repairs you'll have to do on a rehabbed property will obviously look very different if you're buying a property with deferred maintenance. Put some real numbers in there. For instance, if you know you need to replace the appliances in each unit or the HVACs in each unit, plug those numbers in. You have an advantage because you're already a contractor and should have a good idea of what stuff costs to get done. This deal could look very different once you get some more concrete numbers in there (maybe for the better!)

Something else you may want to consider: Your equity position. What if the property does not appreciate? Did you get a good enough deal? It looks like after you do some ($10K worth) of improvements that the total project cost is nearly exactly what the property is worth. All the equity then is in your downpayment (a 1-for-1 exchange for your cash) and not from buying the property at a discount. I obviously don't know your market, but that would make me nervous because I wouldn't get all my money back if I needed to sell it in the first couple years...after you pay closing costs and commissions, etc. I think about risk. You might ask yourself, what happens if rent is NOT $800? What will I do if I need to sell in year 2? What could I sell it for and how much would I get out of it? What if the roof goes out bad in year 2 or I need to make another large capital investment? Do I have the reserves to cover it?

Last thing you might look at as the return on your equity. Is that money better used in another way. 

Just my 2 cents. Your market will play a big part in deciding whether this is a good deal or not.