Plenty of fish in the sea

In my last post, I analyzed two properties that I was interested in, and ended up putting an offer in for Property #2, priced at $155,000. I structured a seller finance deal, offering $135,000. I was in negotiations with the seller for several weeks, but unfortunately, the seller ended up getting another offer for a higher dollar amount. I was given the opportunity to counter with an even higher dollar amount but I decided not to pursue the deal. When that deal didn't go through, I put in an offer for the first property. But I was a few days late, as they had just accepted another offer before I was able to submit mine. While this was not ideal, the best thing to do in this situation is to just keep it moving and keep new analyzing properties.

A few people reached out to me about the analysis from my previous post and expressed interest in more background on the numbers. In light of those request, I will evaluate five new properties.

I used the property taxes as of 2016 to evaluate these properties, which is typically listed on the MLS or the treasury website of the state. The principle and interest payment is based on a conventional down payment of 20-25 percent at a 5 percent interest rate. The offer price on the property is based on a 20 percent discount on the purchase price. Additionally, I called the water utility company to get the billing information for each property, and rounded the number up per month. I accounted for an 8 percent vacancy rate, 8 percent for property management, and a CapEx fund scheduled for a 5-year item replacement. I self manage, but I am including a property management expense in the event I later decide to outsource management. The rental income I use is a combination between what is listed on the MLS and surveying the unit type for the area through websites such as Rentometer, Craigslist, Zillow, etc. I find the market average and use that number as expected rental income.

Property #1

A duplex in the popular RiverWest Neighborhood. It has been rehabbed in its interior, however the exterior of the property looks like it will need some expensive work. Unit 1 is a 3 bedroom 1 bathroom and Unit 2 is a 2 bedroom 1 bathroom.

Purchase Price: $134,900

Offer Price: $100,000

Output:

• $431/month for principle and interest payment
• $223/month in Property Taxes
• $90/month for insurance
• $300/quarter or $100/month for Water Utility.
• $250/month set aside for CapEx.
• $100/month for monthly maintenance
• $136/month Property Management

Total Monthly Expenses: $1,530

Income:

Monthly Rental Income: $1,700

Cash Flow After Expenses: $170/month or $85/door.

Property #2

A Triplex in a middle income neighborhood that has a well maintained interior and exterior. All units are 3 bedroom 1 bathroom units.

Purchase Price: $72,900

Offer Price: $58,000

Output:

• $294/month for principle and interest payment
• $180/month in Property Taxes
• $50/month for insurance
• $300/quarter or $100/month for Water Utility.
• $250/month set aside for CapEx.
• $100/month for monthly maintenance
• $128/month Property Management

Total Monthly Expenses: $1,102

Income:

Monthly Rental Income: $1,600

Cash Flow After Expenses: $498/month or $166/door.

Property #3

A Duplex in a middle income neighborhood west of downtown Milwaukee. Well maintained building with updated kitchens. Both units are 3 bedroom 1 bathroom.

Purchase Price: $69,000

Offer Price: $55,000

Output:

• $278/month for principle and interest payment
• $152/month in Property Taxes
• $58/month for insurance
• $300/quarter or $100/month for Water Utility.
• $250/month set aside for CapEx.
• $100/month for monthly maintenance
• $112/month Property Management

Total Monthly Expenses: $1,050

Income:

Monthly Rental Income: $1,400

Cash Flow After Expenses: $350/month or $175/door.

Property #4

A duplex with great curb appeal in a middle income area that can be occupied as a single family rental. Unit 1 is a 2 bedroom 1 bathroom and Unit 2 is a 1 bedroom 1 bathroom.

Purchase Price: $69,900

Offer Price: $55,000

Output:

• $281/month for principle and interest payment
• $209/month in Property Taxes
• $58/month for insurance
• $300/quarter or $100/month for Water Utility.
• $250/month set aside for CapEx.
• $100/month for monthly maintenance
• $112/month Property Management

Total Monthly Expenses: $1,110

Income:

Monthly Rental Income: $1,300

Cash Flow After Expenses: $190/month or $95/door

Property #5

A duplex in a lower income area that is a few miles south of the popular Walker's Point neighborhood. Interiors are recent rehabs and very well maintained. 1 unit is a 4 bedroom 2 bathroom with 2 levels, and there is a 1 bedroom 1 bathroom garden unit.

Purchase Price: $79,500

Offer Price: $60,000

Output:

• $320/month for principle and interest payment
• $166/month in Property Taxes
• $66/month for insurance
• $300/quarter or $100/month for Water Utility.
• $250/month set aside for CapEx.
• $100/month for monthly maintenance
• $112/month Property Management

Total Monthly Expenses: $1,114

Income:

Monthly Rental Income: $1,550

Cash Flow After Expenses: $436/month or $218/door

Not every offer results in a happy ending, but it's important to always stick to your purchase criteria without forcing numbers. If the numbers don't work, you can't let your emotions cloud your better judgment. Not every property you like will have favorable numbers. When something does not work out, move on. Deals will always be out there, you just have to look for them. After reviewing the locations on these five properties, I was most hopeful about property #1, and turns out, that property has the worst numbers out of the bunch. There will always be other deals, you just have to stay motivated and keep looking. Happy Investing!