[Calc Review] Help me analyze this deal

[Matthew Kinsella]

View report

*This link comes directly from our calculators, based on information input by the member who posted.

New potential investor. Just trying to get my feet wet here and I honestly don't know if I would go for a 6 unit commercial loan like this one for my first investment but I wanted to see what ya'll think.

This CoC return at $400 + per door seems too good to be true. 6 unit building on North side of Chicago. Assuming 5% for repairs, Cap Ex and vacancy, no other expenses as tenants pay for those. 25% down (commercial loan), 3.5% APR....also selling price is the listed price, obviously have not even reached out to negotiate.

Estimated rental income may be a little high - rent estimator is for 2 bedroom / 1 bath X 6 units, however 1 out of the 6 units is a 1 bedroom. Doesn't seem to make much of a difference.

This will be turnkey and the building is fully rented out. I am curious if I would be privy to the current rent price's before purchasing. 

Please critique me to the fullest, I am currently in learning stages without any properties under my belt. Looking to make a move on my first soon. Thank you!

[Kyle Reece]

Hello Matthew,

To start off, whenever I am analyzing a deal If I don't have the exact numbers or its not a fixed expense. I always weigh on the high end for expenses and low end for income. I.e. if rents range between 600-800 run with 600 and if electric for utilities or trash go with the high number. That way you your not surprised if any of your number turn out be too optimistic. 

So to get into the calculator, vacancy rate, every market is different. I do 6% for mine but I've seen some run 10%. Is 5% pretty standard for your market?

You said "no other expenses as the tenants pay for those." Did you mean utilities? I don't know how the property is set up but does each unit have individual heat. Is there no common area lighting that you would need to pay for. water and sewer? Just to clarify, this is a 6 unit building and each tenant pays their own water, sewer, trash, heat, lawn care, snow removal, etc.. I know some municipalities require the landlord to pay the utilities then you can put in your own secondary meter but that costs money and sometimes a monthly service charge. Just want to make sure your not missing some expenses. I've seen a lot of real estate agents put utilities paid by tenant on the listing when that wasn't entirely true.

You didn't put down a management fee. Will you be managing it yourself? Its a good rule of thumb to still include a number here.

As far as your cap ex and maintenance numbers go, Its hard to put a number here without knowing the condition of the property. How old is the roof? Are you doing any repairs off the bat? When was the last repairs/improvements done?

You are putting down a huge down payment(over $200k) your COC return(with the numbers in your report) is 14%, $2548 month cash flow. Personally I don't believe it is that high, I think you are missing some expenses. You should get the actual rents during your due diligence. Whether this is leases or statements showing rents are being collected. If you don't get those, its a red flag.

This may still be a good deal but the numbers are off somewhere. If you look at the 50% rule calculation in the report. The difference in your expenses vs the 50% rule expenses is $2678, that's big. Under that rule your cash flow is $965 or $160 per door. Why are your numbers so different? If you did the COC with that cash flow now your looking at %5.

Hope this helps.