Did I do something wrong? ATL, Ga Deal Analysis (awful returns)

[Damien Lee]

Hi all,

I've just recently started looking into real estate investing and wanted to go ahead and start posting the deals I analyze. I’m currently not looking to buy this home (you’ll see why if you read) but I am looking to improve my deal analysis skills! The returns on the current home I just analyzed looks so bad I wanted to see if anybody could see if there's some huge mistake I made or if it's really this bad.

*Overview at the bottom*

Deal Analysis

This is my second deal analysis so I’m sure there’s a lot of things I didn’t take into account, if you notice anything I could do differently please let me know.

The house I’m looking at right now has been on the market for a while but to make this deal work the numbers are extremely unrealistic. Here is the address if anyone wants to look it up on Zillow, 199 14th, Atlanta, Georgia 30309 Unit # 1802

Pricing

It’s a condo currently listed for $375,000 and condos in the same area sold for around the same amount last I checked, but all the recently sold Condos were recently renovated and this one is not, it’s actually pretty ugly. Most the the changes would be cosmetic changes so rehab cost shouldn’t be too much thus I’d put it’s actual home value at $300-330k.

Listing Price: $375,000

Estimate HV: $330,000

Rent

The condo itself is a 2Bd/2bth but the bathrooms themselves are extremely tiny. The floorplan is roommate style suites so the roommates would only really have to interact with each other in the kitchen or dining area. Around 1215 SqFt, right next to Piedmont Park (which is great for the active folks!)

I’ve talked to a few of my friends and most of them said that they’d be perfectly happy paying about $1000-1100 a month but most of them are college students. Based on the apartment I’m living in right now, the rent I’m paying, and the amenities I get for what I’m paying, if I were to look at that property as somewhere I myself would want to find rent in, I’d be willing to pay $900 at most as it is right now. Other listings on Zillow for the same sort of apartment are renting for $1000/month but they’re also a bit outdated, which is probably why they’re still up for rent. I also think even if I do renovate this home I wouldn’t be able to rent it out for too much due to the extremely small size of the bathrooms, and I don’t think it’d be worth to make the demo for a few extra bucks a month of rent.

I don’t expect rent prices to be increasing too much soon since I’ve heard of a lot of development occurring near GT housing. There’s been quite a lot of construction happening in Atlanta for the past few years.

Has the following Amenities:

Parking + Gated community

Small gym

Library

Rent Estimates (After Reno): $2000-2100/month (both rooms)

Rent appreciation estimate: 2% a year? (I’m not sure about how to calculate this)

Location

In terms of location I’d say it’s an B+ to A class neighborhood as it’s right next to piedmont park and a very short walk to the Marta Station. This leads me to speculate that in the far future when Atlanta becomes the big city I think it’ll be, this Condo will probably be worth a lot more in the future, so this is actually an ideal unit for a long term buy and hold (if you have other cashflow to deal with the expenses).

Expenses

I’m just going to post a picture of the spreadsheet I used for this.

Excluding the Mortgage, the four main expenses here are the HOA fees, Taxes, Property management fees for when expansion occurs, and vacancy being tied with Property Management Fee. Taxes are actually a huge expense most likely due to how high the housing prices in Midtown Atlanta have become. This leads to the actual returns of this property.

Returns

Overall it looks like this deal is pretty awful, at least with the variables in place right now. Which are as follows.

Vacancy: 10%

Repairs: $50

PM: 10%

HOA: $522

The only thing we could really change is the vacancy but this is difficult to do without incurring additional expenses to do so. If we bought the house for the asking price and put a down payment of 20%, then our monthly cashflow would actually be negative and our CoCROI is -10.7%. In terms of a rental property this is a pretty bad deal. In order to get a CoCROI of 10% you would need to buy the property for $53,144 which if you submitted that offer to the seller they’d just laugh in your face, even though this property has been on the market for a while I highly doubt they’d accept an offer so low.

I’ve read that closing costs for legal documents getting signed are somewhere around 3% of the home value which is where the number for closing costs comes from. This would mean you would need to pay $91,950 Cash just for this negative return, assuming the seller pays for the Agent’s closing costs.

To at least break even on the expenses you would need to pay $123,514 which is a third of the asking price.

To make at least some cashflow ($200/month) you would need to pay $62,275 which is around 16% of the asking price, which I highly doubt the seller would agree to.

Due to the expenses and the HOA fee, this property looks to be a pretty bad investment without completely slashing the prices of the home, which the seller is unlikely to do. I'm also wary about buying homes with HOAs since you may be hit with an assessment fee and basically undo all the cashflow you built up.

Rehab

Rehab are just estimates and I have almost no idea what I’m doing but here’s the numbers I used.

The other section is what I would expect to remodel the kitchen sink and counters.

Deal Overview

Listing Price: $375,000

Home Value: $330,000

Assumptions

30 year mortgage

2.75% interest rate

20% down (no PMI)

Purchase Price for

10% CoCROI: $53,144

Break Even: $123,514

$200 Monthly Cashflow: $62,275

Rent: $2000/month

Location: B+ to A

House: B+

Operating Expenses: $1,596.61

Overall, as is and to make it work the numbers are either awful or unrealistic. If anybody has any feedback on the deal analysis, or what I could do better/differently, please let me know!

Thanks,

Damien