I've been analyzing real estate as an amateur for a while now and I've read Brandon Turner's book "Rental Property Investing." I also listen to numerous podcasts on REI, and I spend time on the BP site. I also joined The Seattle Investors Club but my first meeting isn't until January, and I need advice now.
I now am looking and analyzing more seriously, and want to move toward making my first purchase. I've worked as a police officer for almost 30 years. My eventual retirement is fine, but I'd like to start creating some more passive income right now. I consider myself seriously interested in REI. I've owned 4 houses in my lifetime, and I managed a 16-unit apartment building in college.
Here's a 5-unit in Cashmere, WA that interests me. I'm looking for advice on rents and expenses, because I had to do a lot of guessing. You can look up the property yourself: 300 Chapel St. Cashmere, WA 98815. MLS #712065. I'm looking in Cashmere because properties are so expensive in Seattle. My dad lives in Cashmere, so I am familiar with the area and I visit there regularly.
- List price $515,000 (on the market for 6 days).
- Built in 1978 on .4 acres.
- 5 units. Each 1140 Sqft., 2 bed, 1 bath.
- Appliance, countertops and flooring is all 7 years old.
- It is listed with John L Scott but does not list the rents for the units.
- I did my best with plugging in the numbers into the Bigger Pockets RE calculator.
- Purchase price of $515,000 with 20 % down ($103,000) = Mortgage of $412,000.
- I estimated that I might like to spend $30,000 initially for repairs. After repair value of $550,000. Again, total newbie estimates here.
- I can't seem to determine the going rate for commercial apartment loans. 5%?
- Monthly P&I = $2211.
Here's where I start really guessing at items and where I could use some help:
- Looking at what little rent information I can gather for Cashmere, I estimated that each unit would rent for $1200/mo. Obviously, I can probably call John L. Scott and ask, but I was curious that they did not list the rent as a selling point. Why not?
- 2 Loan points $8240.
- Vacancy $300/mo.
- Capex $300/mo. (Is this low?)
- Garbage $200/mo.
- Repairs $900/mo. (Should this be higher or lower?)
- Water and Sewer $400/mo.
- Insurance $100/mo.
- Property Tax (I can actually look this one up!): $432/mo.
The BP calculator shows my potential numbers as follows:
- Income/Expenses Ratio (2% rule) 1.09%. (I'm still not sure of this formula. What does this mean?)
- 50% rule (I understand this one better): Total Monthly Income $6000 (est.) x 50% for expenses = $3000. (Seems reasonable). Monthly mortgage/P&I = $2211. Total monthly cashflow = $788/mo. However at the top of the calculator, it shows monthly expenses of $4843/mo. and monthly cashflow of $1156. Is this more accurate that the 50% rule? As Brandon's book explains, it all depends on the property I guess.
- Proforma cap rate 7.35%. (Still not sure about this one either).
- I'm not going to list all of the future values. Needless to say, cashflow keeps on going up as does the eventual property value if sold. "The future's so bright, I gotta wear shades..."
This is the most relevant data I can give all of you on this property in Cashmere, WA. Are my numbers close? Or am I way off? Is this potentially a good deal? If it is a good deal, I could use some mentoring on this project. I don't know what the appropriate compensation would be. If it is a good (great?) deal, is there anyone interested in investing on the project?
Sorry for the length, but I want to give all relevant details and show that I'm serious (but have a lot to learn). A true mentor would be great. Thanks in advance for the replies.
