Originally posted by @Matt K.:
Originally posted by @Cory O'Dell:
Pretty sure we're calculating cash flow differently. I plugged that property into Dealcheck software and came out to $52. I also neglected to change property management to $0 since I do not live there to self manage (so changing to zero makes no sense??). I also didn't just add in new loan terms when I have pre-approval ready to go for 20% at 5.4%. Otherwise, vacancy at 8%, property management at 10%, maintenance at 10% and cal ex at 3%. Plugged in HOA and taxes/insurance and came to $54. So yeah. Definitely no $400 a door.
Look at the deal for what it is, not for what the software tells you.
PM= 0 because it's a existing long term tenant. Assuming they paid rent on time, you really wouldn't need a PM since a) it's already rented and b) the HOA will take care of most issues for you.
Loan Terms= Approvals doesn't matter, you can shop a better rate if you wanted. I have 2 30 yrs from last year at like 4.4/4.6 granted it's gone up recently but no idea if it's been a full point.
Vacancy- Sure take 8%, but again that's kind of a generic number. You already have a long term tenant, it'd make more sense to find the average length of vacancy and apply that number. Say it's two months, then set aside that amount, take it out monthly if you want, but you don't need a flat %.
Maint/Cap ex= you already have this taken care of through the HOA for the most part. If you wanted to, figure out the useful life of stuff and budget from there... but again flat % isn't going to be the most efficient way to do that.
Now don't get me wrong, you want reserves... that's the entire point of the % for the set aside. But you have 10k saved up for a remodel that you aren't doing... use that. That needs to be considered and adjust your rates accordingly. If you dumped that 10k into this place then your capex/maintenance shouldn't be 20% since almost everything would be new/reconditioned.
60k purchase
15k down payment (25%)
5.4% interest
555 per month
253 P&I, 215 HOA, 36 tax, 51 insurance,
900 rent
Leaves you with 345 mo, and 10k in the bank for reserves which is = to about 39 mos of set asides (20% maint/cap, 8% vacancy).
If you get your loan to 5% vs 5.4 you're at 490 per mo and that gets you 410 left over.
Crazy to me you'd recommend a stranger assume 0% for PM (because HOA), 0% vacancy (because tenant will never leave), 0% maintenance/capex (because HOA), no rehab (but increase the rent), put more money down, and just hold onto $10k instead for reserves...all to make your fantasy cash-flow numbers work. Assume the numbers I just mentioned (0% everything, 60k purchase price, $500 year for taxes, $600 year for insurance, $215/mo HOA, 25% down and 5% interest rate, $900 rent), and your cash flow per month is still only $351, with a lot of bold assumptions in to make it work. Would it work for a year? Maybe. Two? Possibly. But it's certainly not good long-term advice. You can alter whatever numbers you want to make a random cash-flow number, that doesn't mean it makes sense or is smart. I could just put my vacancy to 0 on this fourplex and man, the cash flow let me tell you! It's great!
Is it really though? C'mon man. Hell, even as it sits with this fourplex with no rental increases, accounting for PM, maintenance, Cap-ex, etc etc it cash flows $350 per month. I'm not saying this is the best deal ever, but it's at least realistic over the long-term.
