[Calc Review] Help me analyze this deal

[Dallas Campochiaro]

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

[Richie Thomas]

@Dallas Campochiaro, looks like your expenses are light.  The property is almost 17 years old, which is old enough for some components to start showing their age.  For example, according to this link, HVAC systems suffering from deferred maintenance can expire in 15-18 years.  

Also, your vacancy budget is quite low. One month of vacancy can eat up almost more than 8% of your total *income* (which means much more than 8% of your total profit). CapEx, Repairs, and Vacancy are not expenses you'll incur on a monthly basis. They're expenses you set aside money for on a monthly basis. Because when they hit, they hit hard.

Property management is another expense that I notice is absent.  Even if you're planning on managing the property yourself, you'll want to budget for this expense in case you get burnt out and need to extricate yourself from those duties.  If your goal is to make money while you sleep, you need to get comfortable with finding and hiring honest and talented professionals to take the reins, so you can focus on the next deal, and the next one after that.  Otherwise, you aren't investing- you're buying a job.

Closing costs are only $2,000?  Is that common in your area?  I've been budgeting 6% of the purchase price (3% for listing agent and 3% for buyer's agent), because I know in some areas it's common for one side or the other to pay both agents' fees.

I would definitely confirm with an FHA lender that you'll qualify for a loan at 3.7% with no points. From the research I've done, it seems there are usually fees and points associated with these kinds of loans, such as a mortgage insurance premium (MIP) of around 1.5-2% of the purchase price, due at closing.  That's in addition to the myriad other fees (title search, recording, appraisal, attorneys, inspections, etc.) that you'll encounter over the course of the transaction.

There are other questions I have about this deal, but the above are the biggest questions.  It looks like insurance budget are twice what it should be, and property taxes are half what they should be.  Gauging the accuracy of your income numbers is another great reason to talk to a property manager, but if you're planning on living in one of the units then your income estimates line up with what I'm seeing on Rentometer:

One other risk to call out is the after-repair value.  Gauging the comps in this area seems really tricky, since recent purchase prices are few and far between: