CRE Student Who Needs help with Rental Analysis / Advice

[Noah Harms]

Hi, I am 19 and going to school for finance and real estate and have started crunching numbers as a practice to see if I can find some good deals. Based on the information I can find and an Excel template I am using it would suggest this property is a 9.3 cap and would have cash flow after expenses of around $3000 per month. This almost seems too good to be true. I'm thinking maybe some of my numbers are wrong or I have some unrealistic expectations of expenses and rent. Could someone take a look at this and tell me what they think? My rent numbers and expenses are all based on Denver Rent Cafe data and tax history data. This property is located a block from Denver University for context. Also, let me know if you think a 6%ish interest rate and 10% down is not right either.

[Rene Hosman]

Hi @Noah Harms are you a student at DU? I'm a Pio alum! It looks at first glance like your annual and monthly payment are way off on this calculator for a 5.9% interest loan on 630k your monthly payment would be something more like 3.7k not 1k per month. If you haven't tried this yet I'd recommend playing around with some of the BiggerPockets calculators here https://www.biggerpockets.com/investment-calculators If you have a pro account you can use the calculators as much as you'd like, if you have a free account you do get a few free uses of the calculators! Having access to all the calculators as many times as you like is a huge perk of the BP Pro membership!

[Noah Harms]

@Rene Hosman Thank you for looking at this! I am a CU Boulder student. I thought this calculator auto-calculated the monthly payment I see now that it didn't and I adjusted it to be around 3.7k and now it is making around $600 a month which seems more reasonable. I'll provide updated screenshots below, does this still look like a decent investment? It is still a 9 cap and would meet the 1% rule. My only other big question is what is a good way to know how much you can charge for rent? I have looked at places near this property and the average rent in this neighborhood and just made my best guess. Is there a better science than that? I will also take a look at some of the calculators you linked. 

[Rene Hosman]

To me it looks like this excel sheet isn't auto calculating your cap rate either given that you changed the number for rent and it's still showing as 9.3% your cap rate is the net operating income divided by purchase price. For example this sheet is saying your NOI for year 1 is 52,548 which divided by 700,000 which is your purchase price comes out to 7.5%

I have to say without knowing a single thing about this property other than the approximate location 7,000/mo seems high unless this is some kind of huge house you're doing rent by the room. 

I think of finding rental comps as basically the same process as finding purchase comps to reference. For me when I'm estimating rental income I start by looking at the area for active listings <40 days old with similar characteristics to the home you're looking at purchasing (trying to find same bed/bath count, and same amenities like in CO homes with a fenced yard do very well because everyone has a dog). Then I find active facebook pages for rentals & sublets in that area and start scrolling through to see what kind of inventory I'm finding there and what prices I'm seeing for rent by the room and for whole units to make sure I'm estimating the approx amount per room correctly for the area regardless of if I'm doing a rent by room or rent the whole thing at once strategy.

[Noah Harms]

@Rene Hosman Thank you! I will try some of that and see if I can get some more accurate numbers I also just made a new post with a potential property if you want to take a look.

[Rene Hosman]

Quote from @Noah Harms:

@Rene Hosman Thank you! I will try some of that and see if I can get some more accurate numbers I also just made a new post with a potential property if you want to take a look.

 I'm not seeing your post yet but will keep an eye out!