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Updated over 3 years ago,
[Calc Review] Help me analyze this deal
looking for some help to analyze this property, would this be a good deal?
*This link comes directly from our calculators, based on information input by the member who posted.
@George C. a few questions/comments:
1) How confident are you with the $3,600 rent? Are these the current/actual rents? If you don't get this, then this could blow up your deal
2) Is this a SFH or MFH? I see you are accounting for $68 for Water/Sewer which would likely mean MFH. How many units?
3) I would make sure your taxes are accurate. They are high, but some states are. I normally try to use a county property tax calculator based on the new purchase price if your county offers one.
4) I think the vacancy and PM are heavily market dependent. For PM of 8%, does this include tenant screening, marketing, commissions, etc?
5) Maintenance & CapEx of 5% each, heavily dependent on the age of the home. If this is a newer home, I'd say you're good. If this is an older home, it may be too low.
@Brendan Miller that figure is projected rents based on comps after some renovation and you're right that's why I was trying to be really conservative to see if it's a good enough deal without full market rent, it is a 2 family, and most of the figures I am getting from the listing, they seem to be fairly recent, for PM I just factored the cost but didn't actually think about what that would actually pay for, thanks for mentioning that, the property is in decent shape, just needs some updating, but wasn't really sure if it makes sense at this price point.
@George C. what purchase price would make it a good deal for you? That's what I normally do, I first run numbers based on the list price and then I adjust list price down until it meets the CoC that I'm looking for
@George C.
Hello George I was wondering if you going to house hack or just rent out both units?
Looking at the numbers just have a few questions?
The property price is $400k and the Loan amount is for $386k so the down payment will be $4k?
if you put down 20% that will change the loan amount to $320k which will lower your mortgage payment and won't have PMI.
Thank you and good luck
Originally posted by @George C.:
looking for some help to analyze this property, would this be a good deal?
*This link comes directly from our calculators, based on information input by the member who posted.
I would not purchase this house when the cashflow is so low. If I am right you will get about $250 per month for cashflow.
I don't quite understand the entire report, but when purchasing single family homes the appreciation just may not match the projections in the report. I purchased 10 homes in Boise and Meridian Idaho 15 years ago and they did not appreciate nowhere near what I projected and they have been 'dogs'. I own properties in Massachusetts in Springfield, West Springfield, Holyoke, Chicopee and most of the homes are not worth much more than 40 years ago. I have a beautiful 3-story home I've owned since 1975 in Holyoke with apartments on 3 floors and I can't get $250,000 for the property.
I am probably going to get thrown off the forum someday because I keep saying that everyone who wants to just own real estate and they don't want to get into a business like an airbnb then they should try to purchase 4+ units because the investment is bulletproof against market corrections and your profits are almost exponential just by increasing your rents a little every year.
If you insist on purchasing single family homes then look for homes you can purchase for a discount by going directly to brokers offices and ask for pocket listings and listings they have not put on MLS because this is the only way you will get discounts from brokers. I never purchased a property that was listed on MLS, or on any website like zillow, redfin, or loopnet because the properties are always priced to the max.
Write yourself a business model where you want to earn 50% to 100% on your investment capital every 1 to 2 years. This can be achieved by looking for properties that are either discounted, or properties where you can increase the value equal to your down payment. So, if you put $50,000 down, you want to purchase a property that is worth $50,00 more the day you close escrow, or it needs to be worth $50,000 more within 1 to 2 years. If you do not have such a business model then you cannot achieve that goal and if you do have a business model then you can achieve that goal.
The following chart shows the profit you can make with a 4-unit property when you increase the rents a little every year. You cannot achieve this type goal with a single family house.
There are many 4-plexes that don't cost much more than a single family house, but you need to learn to do the math to make sure your 4+ units has rents that are high enough to cover the costs for when a tenant moves out. I find that the prices for many 4-plexes are low, but the rental income is too low to cover expenses for when a tenant moves and you need to paint, install new flooring, replace appliances, repair plumbing, maintain the yard, trees, etc.
The same goes for the single family home you are looking at. Sometimes, it costs $10,000 to $15,000 to cut down trees and do other things necessary to maintain the yard, driveway, garage doors, etc.
The numbers in your report don't answer many questions that need to be answered because I can't see the condition of the roof, driveway, plumbing, etc. and cannot see the life expectancy. If the drain and sewer pipes are old they could need to be replaced and that could cost up to $40,000, or maybe there are other things I would see when inspecting the property before purchasing it.
When you own multi-unit properties, you don't get hit so bad when you have to make repairs because when you raise the rents every year you are increasing 4 rents at the same time and your cashflow gets huge real fast. So, when you do have to make a major repair you have a
lot more cash. when one tenant moves you don't get hit so bad and you still have 3 tenants paying your mortgage.
@Brendan Miller do you use other metric other than the CoC? how about ROI/ROE
@Morgan Williams I plan to house hack it and rent out both units after 1yr, yes I want to use FHA if possible for lower down payment and then refinance after a year to a conventional loan, so I can limit my actual cash outlay since I plan to do some renovations and want to have reserves
@Account Closed wow thank you for your insights, definitely agree with you about leveraging multifamily and this property is a 2 fam, looked to be in decent condition but don't know what an inspection would uncover, you're def right about checking those potential repairs, and very interesting business model you mentioned, will have to look that over again, thank you for your input!
@George C. I mostly focus on CoC. If the deal meets the CoC criteria that I want, then it'll meet my IRR target as well. I typically shoot for an 8% CoC for the markets that I am in which is probably considered an OK deal by some investors in other markets
@Brendan Miller got it, thank you that's helpful!