All Forum Posts by: Derek Kirkwood

How much did you figure for closing costs, loan down payment, interest rate, term?

I ran the numbers with 15% down at 4.5% and 2% of sale price for closing costs to match your $665 mortgage payment and I'm seeing 8.4% cash-on-cash with a monthly cashflow of $184 which is $46 per door.

I think the difference between your numbers and mine is you did not count the 1800 annual for utilities.  Let me know if I missed anything.  Do these numbers meet your objectives?  If so seems like it could work.  12% property management seems a bit high for multi-family, I usually see people talk about 7-10%

@Jorge Quintero The math is not adding up here. With all the expenses you have listed plus the 2295 taxes your monthly expenses add up to 7,275 per month. Your gross operating income with 10% vacancy is 15,110 which leaves an NOI of 7,845. After subtracting the debt service of 5,928 you are left with 1,917 cash flow. If I'm wrong please show me how.

I don't want to discourage anyone, because as the saying goes, where theres a will theres a way. I think if you are motivated and persistent enough you could make a SFR deal work. But, there are a lot of ways this particular deal could go south. Like others have said I don't think getting 100% financing for less than 5% interest rate is realistic. Maybe do an FHA loan on a deal that you could pay the mortgage with your W-2 income, then execute your plan of moving in two roommates. Might be a great way to learn how to be a land lord. Then if you are unable to find roommates you can still afford the mortgage.

@Gary Michalske Thanks for the book recommendations.

You hit the nail on the head, to maximize CoCR you want the largest LTV over the longest term.

When you say buy-and-hold how long are you thinking?  I assume the 5 year plan you mentioned was acquisition phase, not the total hold term.

As far as verifying expenses, one of the things @Frank Gallinelli mentions in his books is ask to see their last tax return, or at least just the portion concerning this property.  Obviously thats pretty bold and they may say no, but might work.

The expenses are only 25% of rent?  When they talk about apartments on the podcast i think they usually say its over the 50% rule, somewhere around 60%.  I don't see maintenance and Cap Ex specifically listed anywhere other than "misc" 7%.  I'm concerned that you are not budgeting enough for maintenance expenses.  

How confident are you about the 5.5% assumption for appreciation?  Thats great if that true for the market, but risky to assume that if you're not sure.  

What did you use to do the analysis, a website or spreadsheet?

@Andrew UMphrey  Congrats on getting this under contract!  I don't know much about oil heating but here is the same discussion:

https://www.biggerpockets.com/forums/742/topics/488598-oil-to-gas-utility-conversion

I bet the inspector would have some thoughts on it too.  Either way you want to determine what utilities will be paid by you and which will be paid by tenants.  Could have a big impact on monthly expenses.  

Good luck, let us know how it goes.

I think you have the property tax as a positive number in your expense column, where it should be negative.  If I add up all of your expenses you have listed in the first post and add P&I:

291.67+126+144+126+150+755.48 = 1593.15

Subtract that from gross rent: 1800-1593.15 = 206.85

Cash-on-cash: 206.85/58,650 = 3.5% with no vacancy allowance

Net Operating Income does not include debt service.  While you might need a mortgage to own a property, you do not need a mortgage to operate a property. The purpose of NOI is to know the income a property produces independent of the owners financing or tax situation.

https://www.propertymetrics.com/blog/2014/03/05/net-operating-income/

@Andrew UMphrey I might be late to the party but I agree with 18% if all the assumptions are correct.  Have you thought about:

• Closing costs.  I know theres no mortgage but who pays title search/insurance, recording fee, inspection, etc.
• Snow removal/landscaping costs
• Utilities.  Which do you pay?

Otherwise sounds like a cash-flowing beast.  If you are doing major rehab it might be a good idea to do the work to have utilities metered separately for each unit.  Best of luck.

The math for cash-on-cash return here is wrong. You are dividing NOI by Total cash invested. You haven't paid the mortgage payment yet! CoC is cash flow before taxes divided by total cash invested.

Using your NOI of 790 subtract mortgage P&I of 755 = $35 monthly cash flow which is $420 annually. So $420/$58650 = 0.7% cash-on-cash.... less than 1%!

Once you factor in vacancy as others have suggested you might be negative cash flowing.