Analyzing my first potential investment property
After about a year of studying, reading books, and lurking the biggerpockets forums, I'm about to put an offer in on my first investment property. It consists of two duplexes on adjoining lots, sold together at a single price. My understanding is that the owners are wanting to downsize their portfolio as they are nearing retirement.
The buildings are all brick, constructed in 1972. Specific information from the seller is as follows:
All units are said to be under new 1 year contracts.
Unit 1: 2+1 @ $500/moo
Unit 2: 2+1 @ $500/mo
Unit 3: 1+1 @ $450/mo
Unit 4: 1+1 @ $385/mo (I am told this is a long-term tenant)
GOI: $1,835/mo
2014 property taxes: $1,260/yr = $105/mo
Insurance: $1200/yr = $100/mo
Owner pays water: (1 unit has separate meter and pays the water): $225/mo combined
Owner pays trash: $100/mo combined
Asking Price: $99,995
Maximum offer based off reverse 2% rule: $91,750
Mortgage(20% down @ 4.25% for 20 years): $454.52/mo
Monthly Cashflow using 50% Rule: ($1,835/2)-$454.52 = $462.98/mo
My assumptions: 12% PM, 10% Vac, 10% CapEx, 5% M&R = $678.95
Total operating expenses: $678.95 + $105 + $100 + $225 + $100 = $1208.95
Monthly Cashflow from my numbers: $1,835 - $1208.95 - $462.98 = $171.53
Assuming $2500 to close and $18,350 as down payment, looking at $20,851 out of pocket.
Cash on Cash Return: ($171.53*12)/$20,851 = 9.87%
From what I've read, I might be on the conservative side with some of my assumptions. Using my numbers brings me well below $100/door/mo on paper, but I will be saving the management costs since I'll take care of it myself. I wanted to make sure it was still cash flow positive though, so I tried to include everything I could think of.
With that being said, I want to be sure I'm not missing something. If someone would care to dive into my analysis it would be greatly appreciated. This community has already been an invaluable resource for my learning so far.
Also, any suggestions on making an offer? A quick drive by of the property showed at least one of the buildings could use a new roof and some minor gutter work is in order. Do I factor that into my initial offer or just make sure their is an inspection contingency that would allow me to amend the offer once it's looked at by a professional?
Thank you for taking the time to read through this. My apologies for the length.