[Calc Review] Help me analyze this deal

[Clayton Hepler]

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I am trying to do my first BRRR single family home deal. Feedback please? What screams a good deal? What am I looking for?

Some thoughts:

1. I am going to be managing it

2. There are comps that the rent could be 1500, 1200 or 895

3. I am probably going to get a 7% or 8% loan from some family and friends. 

[Richie Thomas]

I think for now it's enough to confirm I'm looking at the right property.

Full disclosure- I'm an aspiring (i.e. not an experienced) investor, so get confirmation of the below opinions from an expert before acting on any of them.

The first thing I like to do when analyzing a property like this is look at the location, since it's one of the few things that's unchangeable about a property.  I think this property is in the Millvale section of Pittsburg?  Looks like there are pluses and minuses to that part of town.  My first stop is almost always City-Data.com, which has exhaustive reports on most zip codes and neighborhoods in the US.  Looks like Millvale has lost about 9% of its population since 2000.  That's not a good sign; it implies locals view this neighborhood as less attractive relative to other nearby areas.  If I'm looking at a city page as opposed to a neighborhood page, I'll also check the population size, to make sure there will be a large enough population base of renters.  Since this area is in Pittsburgh, I won't worry as much about that.  The population looks low, but the percentage of renters is almost double the statewide average, so that's a good sign.

As another check, I like to plug the neighborhood's name into Google News and see what kind of stories come up.  If I see a bunch of mug shots in the top search results, I assume it's a war zone.  If it's concert listings and traffic reports (like it is with Millvale), then I assume it's a working-class or better neighborhood.

OK, on to the property itself. You've budgeted $90,000 for the acquisition price but $0 for repairs. I'm showing the listing price is only $72,900, so I'm guessing you lumped the repair costs in with the purchase cost? The property was built in 1900 and we don't know how much useful life is left in things like the roof, foundation, HVAC, electrical, plumbing, etc. And it looks a little beat-up even from the MLS photos, so you might want to increase your repair assumption a bit.

Side note on estimating repair costs- one of the most important parts of the out-of-state team I'm trying to put together is my contractor and my realtor.  I'm in early talks with someone who does both of those things, which I think will make it easy for them to do a walk-through and judge not only what needs repairs in order to rent quickly, but how much those repairs will cost.  I don't have enough experience to say whether this will be effective or not, but I'm optimistic.

Your closing costs estimate is $2,500.  Where did you get this estimate from?  If the purchase price is $73k and you use an estimate of 5%, it would come out to $3,500.   But if you've been quoted this figure from a realtor already, then definitely stick with what they told you.

Your after-repair value of $135,000 looks too generous.  It's hard to judge because I don't see many comparable properties sold recently on Realtor.com:

It's also hard to judge how similar the two properties in the above map are, since we don't see a square footage number in the Realtor.com listing.  So I went to the Alleghany County Property Records website and looked it up:

I noticed that it's 1,660 square feet, giving it a cost per sq ft of $43.91.  That's much better than the $128k property's $/sq ft. of $80.  But neighborhoods can change quite quickly from one block to the next, and these aren't quite close enough for me to feel confident that they're truly comparable.

One thing that jumped out at me while I was looking at the above county records is that it's officially recorded as a 2-bedroom, 1-bathroom, NOT a 3-bedroom, 2-bathroom (like the Realtor.com listing says it is).  I'd be concerned that there may have been un-permitted work done to convert the property to 3BR/2BA.  It may be worth a call to the recorder's office to ask what could cause such a discrepancy.  It might be nothing, or it might be something.

You've got the "time to refinance" down as 13 months.  Most refinance loans I've seen have a seasoning period of 12 months at most, and sometimes it's as low as 4-6 months.  Make sure you're getting the best deal there.

You've estimated $1,300/month in rental income.  Rentometer is usually hit-and-miss when it comes to estimating monthly income, but it says that the closest rental property to yours that it knows about rents for $1,200/month.  And it's probably safest to assume that this number is high.  If it were me, I'd estimate $1,150 or maybe even $1,100.  Even better, before looking at specific properties like this one, I'd start by networking with local property managers to see what *they* think this property would rent for.

You've estimated $0 in refinance fees. This is probably unrealistic. When you refinance at the new ARV, the lender will want an appraisal done, and they'll pass the cost for this on to you. A non-exhaustive list of other closing costs for refinance loans include title fees, origination fees, attorney fees, flood certification fees (depending on your area), and recording fees.

Your interest rate for the refinance loan is 4.5%.  Have you been quoted this by a bank?  And if so, did they know you are applying for the loan as an investor, not an owner-occupant?  Or is this part of the private money lender deal you mentioned in your initial post?

10% vacancy budget is good.  5% each for repairs and capex is low.  15-20% combined for these two items would be better.  I'd go closer to 20% since the house is so old and (I'm guessing) you haven't had an inspection performed yet.

I know you said you'll be managing the property yourself, so I'm SUPER-glad to see you including a 10% PM fee anyway.  Very few people do this, and it shows you're thinking ahead to the possibility of hiring this job out in the future.

Realtor.com says the insurance cost for this listing is $27/month, so you insurance budget of $100 *might* be a bit high, but this is very area-specific so I can't be sure.  Ask your agent.