Analysis, No Paralysis

[Dhrumit Patel]

Hello everyone!!

This is my first post on BP. I am from Windsor, CT looking to house hack my way into Real Estate using a FHA loan or a low-down payment conventional loan. I am currently looking for a multi-family property in the Hartford County, Connecticut.

For me analyzing properties is a fun task, but I am uncertain about my estimating abilities. So, I’d like to share with you how I analyze a deal and to see if you’d have any tips or feedback for a newbie like me. I would appreciate your opinion on what the average estimates are like in reality for the Hartford County.

Also, what kind of CoC return do you like to see for the Hartford County, and what is the cap rate you are comfortable with?

INCOME:

Rental Income: - First I check the MLS listing to see if they provided rent information. Then, I go on apartments.com, Zillow, trulia, and rentometer.com to see what the market rents are; for e.g. 2 bed 1 bath in East Hartford area. This gives me an idea about the market rent, so I can compare with the listing (if rent info is provided).

EXPENSES:

Property tax: - Usually property tax info can be found with a few clicks. I google “town name tax collector” and then search the property address. This helps me find the annual property tax.

Home Insurance: - I estimate from $1500-$1900 annually depending on the number of units (Duplex: $1500, Triplex: $1700, quadplex: $1900), age of the property, and the condition of the property. I reviewed a few BP forums to try to figure out the average in Connecticut for Multifamily, but there are only a few posts about the home insurance rates so I think I may be estimating the home insurance rates wrong. I contacted two insurance agents, but they told me they wouldn't be able to give me an estimated average because it all depends on the particular property.

Lawn/Snow: - I think around $100-150 a month would cover the lawn/snow removal. Since, I will be house hacking I may just mow the lawn & shovel the snow myself, but I always include this cost in my calculation due to the fact that I may only live there for a year or so.

Vacancy: - I estimate about a five percent of the rental income towards vacancy.

Repairs: - If the property is less than 15 years old I estimate five percent of the rental income, between 15-30 years old I calculate seven percent, and if the property is more than 30 years old I estimate ten percent

CapEx: - If the property is less than 15 years of age I calculate five percent of the rental income, and if is more than 15 years of age I calculate ten percent of the rental income

Mortgage: Mortgage calculators online help me figure out the monthly mortgage payment based on a 3.25% interest rate and a 30 year term

MIP: - For an FHA loan with >95% LTV MIP is 0.85% of the loan amount. I plan on a minimum down payment of less than 5%.

Property management: - 10% of the rental income

Utilities (Electric): - Since I will be living in one of the units, I estimate around $80-100 for electric for myself, and the tenants would pay their for their own utilities

Utilities (Water and Sewer): - $50 a month should cover water and sewer (tenants pay for their utilities)

Utilities (Gas): - $50 a month should cover gas (tenants pay for their utilities)

Utilities (Garbage): - $60 a month should cover garbage (tenants pay for their utilities)

[Michael Noto]

Welcome to BP @Dhrumit Patel. Always great to see others in CT making moves in the local markets. Here are some quick comments regarding your numbers you outlined. If you have any follow up or additional questions feel free to reach out anytime. 

- Zillow and Realtor.com have accurate property tax info that get scraped right off the MLS so it may be easier to use that instead of the town tax websites. It is definitely good to know how those sites work though and the info provided on them.

- Your insurance rates are high as you mentioned. Remember, rates will be lower when you owner occupy. Figure $800-$1000 (duplex), $1100-$1300 (triplex), $1500-$2000 (quad). Those are just general ballparks. Age of home, size of home, and a range of other factors specific to the home will determine rates. 

- snow/lawn is high. Figure $1000 in a year where we get a ton of snow. 

- water/sewer is low. If you buy a 2-4 family you as the owner will be paying it. If you try and bill tenants for water/sewer it will put you at a compeitive disadvantage with other units for rent so price it into the rent accordingly. Also not to mention the rabbit hole of how do you know how much water/sewer a tenant is using? They all run on 1 meter. Figure $800- $1000 a year combined for a duplex and up from there for a tri/quad. The main driver of high water/sewer vs low is washer/dryers and how many people are living in the building. 

- $60 a month is way high for garbage. Most towns bake this cost into your property tax and if you have to go private it is $80-$85/quarter for a normal set of cans. 

- Repairs and capex percentages will be largely based on the specific homes you buy and the age of the systems at the time of purchase.