[Calc Review] Help me analyze this deal

[Timothy B. Dunn]

View report

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

[Richie Thomas]

Hi @Timothy B. Dunn, I'm only an aspiring investor, not an experienced one, so take what I say with a grain of salt.  That said, looks like the property is from this MLS listing?  I see you're only budgeting 7% for property management.  Most PM companies will want 10% for a normal listing.  And I see Mt Vernon has a pretty high crime rate, so you might need to budget closer to 12% or more.  Many of the top PM companies, who can afford to be picky about their clients, may choose not to manage it at any price.

In addition, I see from Rentometer that the median rent for a 2-bedroom in that area is $625:

And those are Rentometer numbers, which can sometimes over-estimate by a significant amount.  You know your area better than I do, so I'll defer to you on what a realistic rent amount is.  But the crime stats make it seem like a rough area, and a Google News search for Mt. Vernon turns up quite a few police blotters and crime stories. Therefore you may actually want to charge slightly-below market rents, so tenant interest is higher and you can be more picky about who you rent to. Cutting your top-line income will cut your bottom-line profit by a disproportionate amount, i.e. if you reduce your rent from $650 per door to $550 per door, that means your top-line goes down to $1100 and your bottom line goes from $350 to $150. Not sure what the new COC % would be but obviously it's not 20% anymore. Something to think about.

A related reason to proceed with caution would be the larger population trends in the Mt. Vernon area.  If we again go by the info on city-data.com, the population has decreased in that area by 8% since 2000.  That means your pool of prospective tenants will only get smaller if that trend continues, and there's no reason to think it won't.

I hope I'm not discouraging you with my post.  In general, it seems to me like it's better to avoid a bad deal than to score a good deal.  If you miss a good deal, there's always the next one.  But if you lose 20% on a bad deal, you have to make 25% on your next deal just to break even overall.  But again, I'm still looking for my first property too, so definitely listen to more experienced folks first.