Help Newbie Analyze this Property?

Question

Hi all, this is a two-family home I am interested in. I will be going to see it tomorrow with a realtor just to take a look at it. It is a short sale. I will be using this for buy and hold purposes. Home was Built in 2001.

MLS# 1093182

Asking Price: $229,000

Projected Purchase Price: $220,000 (This was used for this report in rental calculator)

Down Payment: 20% = $44,000

Amortized Over: 30 years

Loan Interest Rate: 3.80%

Monthly P&I: $820..08

Monthly Income: $2,200 (This is from total of 2 units)

Monthly Expenses: $1,750.50

NOI: $15,235.00

Monthly Cashflow: $449..50

Pro Forma Cap Rate: 6.54% (No Idea what this is)

Purchase Cap Rate: 6.93%   (No idea what this is)

CoC ROI: 9.46%

Total Operating Expenses: $930.42

Mortgage Expenses:    $820.08

Vacancy: $220

CapEx: $110

Insurace: $50

Property Taxes: $340.42

Repairs: $110

Water: $100 (Guessed here, not sure if I pay it or not)

Sewer/Gas/Electric/HOA: I put ZERO for all. (Not sure of this is accurate)

-So this is pretty much everything, not sure if I am missing anything or if I did anything wrong. I tried using the 70% rule as well, but I think I am doing that wrong, I will go try again and play around with the numbers. Any tips/advice or changes I should would be very helpful. Still quite new to this.

Jonathan Wilks · Answer

I didn't see any accounting for property management.  I personally always calculate it even if i will self-manage. It allows me an exit strategy to eventually not be hands on.

Eric DeVito · Answer

@Mike Kreig

Thank you Mike, I know the purchase price I used was 220,000. I would love to get it between 210-215k. I haven't got to that point yet though. I have to go see the property for myself tomorrow. So Cap is the Pro Forma CAP or Purchase CAP, which one are you referring too? Also you think closer to 10% is ideal? Everything else seems okay?

Eric DeVito · Answer

@Jonathan Wilks

Ok Thank you, I suppose I should include that. I will be running the property myself. Everything else seems fine?

Mike Krieg · Answer

Eric,

Great job finding a potential deal. As for me, I would be very careful about any cash flow property with a CAP rate below 8%. But that's me. I'd say, unless you think this has appreciation potential, be wary of that...or, try to get the price down so your CAP hits closer to 8%. You'll want that margin of safety. Of course, ask your realtor about this as well. If he's good, he'll help keep you from making a big mistake. Good luck!