[Deal Review] Analysis Paralysis

[Nathan R Andersen]

I'm having a hard time analyzing this deal. I have mostly looked at small multi family properties with cash flow being my major target as a newer investor. 

My wife works in healthcare and regularly hires traveling Occupational Therapists, Physical Therapists and their assistants as part of her job. We also have a REALLY hard time getting traveling professionals in our area as we live in Apple Valley, CA (outside of "the good part" of Southern California). Many educated people choose to live closer to the coast. There are also 3 hospitals within 15 minutes of the location and 2 of them are within 5 minutes of our target home. 

We have a 5 bed 3 ba, that we can enclose a room (without it being weird floorplan-wise) and enclose the garage for a 7th br (unpermitted that we'd remove if required if we sold). Market rents for MTR rooms are between $800 - $1500 per month. We plan to rent them for $1,000 per room. There is definitely a shortage of rooms as my wife has had potential travelers turn down jobs due to lack of housing. 

My hesitancy is that I can talk myself in to the deal and out of the deal with the same numbers. I see the need, think we can keep it full with minimal vacancy, but with the worse case scenario I can come up with we come out down 80k, the HELOC interest paid and I would have to work a job (currently stay at home dad with a side hustle as a nursery) to pay back the money (not that bad TBH). A good case scenario is we profit around $500~ depending on the rate we can get, and then refinance out of it within a few years to bring it down a few points and that will jump the cashflow up several hundred dollars and we have a ~$400,000 asset that appreciates at like 6% per year on average if not more (which we get virtually none of in the midwest).

Deal Analysis Points of Emphasis:

I over estimated the cost of adding the rooms and furnishing at $45,000 instead of our projected $33,000 as I figure my wife is tack on something here and there. I will do a significant part of the renovations myself with previous skills developed (framing walls, running wires and finished electrical, laying the vinyl myself | drywall, texture, two exterior window installations, sawing out the tile for the wall, and hanging one door will be done by someone else). I also have underwritten in 15% vacancy, ~$200 over for utilities, and $300 for property management which COULD be removed if profits fell as we have a live in partner doing that (gains equity year over year at 1.5% each year capped). All of those are high and give me a bit of cushion. 

Tell me whether I'm crazy or normal. Anyone with MTR experience and advice would be greatly appreciated. 


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