Help a novice analyze a deal?

Question

I've been getting more interested in real estate investing in the last few weeks and have been fire hosing information during my day job. I'm working on building some capital at the moment but I want to get at least a little experience on the analysis part before I jump all the way in. The rental calculator was pretty simple to use after watching the webinar last night but without any experience I'm still unsure about it. I would appreciate it if someone could break down an analysis on this so I can gain some confidence or fix any mistake I might have made. The average rent is ~$1050 for 2 bedrooms and I live in the area so I wasn't planning on hiring a property manager. Thanks in advance! Good deal?

Rob Gillespie · Answer

Welcome Mark!

I know there are a lot of calculators out there. I use a very simple formula to START, but need to look at all factors.

Annual gross rent and cut it in half. So if you are getting 1k per month that is 12k per year and you will have 6k left that is your Net Operating Income. You will take your principal and interest payment out of that 6k and whatever is left becomes your cashflow.

Now the variables.

What class neighborhood is it in? Better areas typically perform better .

How old are the major items. Furnace, electrical, plumbing, roof, etc.. this could cause ya to be heavy on CAP X.

How many units are in the building? If you have a 12 unit for instance, you may need to consider, grass cutting, snow plowing, cleaning hallways and common areas bigger water/sewer bills and dumpster fees. this could cost you MORE than 50% of your gross rent in expenses.

Who is paying utilities? who pays ALL utilities?

Biggest thing to remember is that Sellers LIE. Read between the lines when buying a place. Ask to see tax returns and NEVER buy based on how a building COULD perform. Buy based on reality.

Sorry, I could go on all day about this, I tried to keep it short and to the point.

Good luck!!!

Steve Morris · Answer

Ummm, it says PRICE UNAVAILABLE.  Sounds like a great deal already.

John Garcia · Answer

@Mark Hargrove  Do you have your Rental Property Analysis complete?

I tried doing it for you, but I don't know enough about the property to make a wise conclusion.  I hope you have more information to gather on this.  It looks like they are selling all 3 duplexes rather than just one duplex.  I do not know what taxes you will be paying or if there is any other maintenance you will have to do since it's not a single-family home now.  You are past the 5 unit rule, you will be charged differently for taxes.

John Garcia · Answer

Be sure to use accurate numbers and not potential numbers.

Use the 2/1% rule, helps you take out deals that aren’t worth looking at, unless you aren’t looking for cash flow.

Check your CoC ROI! If you are using real numbers, you will get a good picture of your return. The higher the better.

Be sure to add your correct monthly expenses, be sure to save for vacancy, maintenance, and other expenses.

I hope this helps!  I know it has really helped me to focus on great properties rather than bad or just okay properties.

Nicholas L. · Answer

@Mark Hargrove welcome.  Do you own or rent?

Jill F. · Answer

Boy taxes are super cheap there if those taxes are for the whole year and not just a half. The numbers at a 170k purchase price should work. The only unknown for me would be the cost of servicing and maintaining the septic. I'd push the lawn maintenance off on the tenants if the market will allow it. That looks like a nice property.

John Garcia · Answer

@Mark Hargrove No problem, I ran into the same situation, I tried buying a duplex but the same thing happened, when I read all the info, the seller said he would not split them up.

Mark Hargrove · Answer

I didn't realize three separate buildings being sold together counted as if they're together. I had my realtor get me more information but the seller wasn't allowing any more showings because they had already gotten some offers. Anyway, thanks for replying and offering some helpful insights!

Mark Hargrove · Answer

There's a blue hyperlink at the bottom of my post that shows the actual property I was looking at. It was a little hidden because I didn't leave it as a url.

Steve Morris · Answer

Absolutely ZERO clue.  You need some comps to say good/bad on it and don't even know where you're looking.

Help a novice analyze a deal?

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