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Forums » Real Estate Deal Analysis and Advice » Basic REI Analysis...

Basic REI Analysis...

20 posts by 7 users

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Multi-family Investor · Atlanta, Georgia


I am looking to purchase a quad. I have been reading a lot over the past several weeks and put together some of the basics to get an initial analysis. This is by no means comprehensive or a final analysis before I purchase.

Type: Quad (2bd/2ba - 940sq.ft/unit)
Rent: 525-600 based on Craigslist and Rentometer
Rehab: ~2.5k/door
Financing: Debating between FHA 3.5%/FHA 203k/VA loan I don't have much money down but I have a hard money investor for the down payment if needed.

Here is a picture detailing my simple analysis...if there is anything else I should look at or I am missing please let me know. My next step is to create an itemized expenses breakdown instead of the 50-55% default
http://i.imgur.com/aidAJvu.jpg



Residential Landlord · Ramsey, New Jersey


Not sure about the neighborhood but for the numbers only, this is a very good deal.



Multi-family Investor · Atlanta, Georgia


Thanks @Larry K., being a first time investor I feel like I am being too jumpy and want to buy this property now but part of me is trying to be realistic and chalking it up to a "to good to be true" moment.

I mean in all honesty if there was another investor in the area why wouldn't they have bought it up? Do good deals sometimes come around just sit in MLS for weeks/months without people buying them?



Real Estate Investor · Southport, Connecticut


@Ryan_Halverson Looks like you're being thorough and careful in your analysis. I would suggest you include an allowance for vacancy and credit loss. Also, confirm that these financing terms are available to an investor, not just to an owner-occupant.


Small_logo_realdataFrank Gallinelli, RealData
Telephone: 800-899-6060
Website: http://www.realdata.com
-- www.realdata.com


Multi-family Investor · Atlanta, Georgia


Thanks @Frank Gallinelli I would be living in 1/4 of the building for the first 6month-1yr as we are just moving to the area, this would allow me to finance the unit the same as a SFH correct? I would continue to pay "rent" into the buildings bank account so it's finances weren't messed up. I included a "55% rule" which would take into account the higher vacancies for an area with numerous MFH.

My rehab would be to put nicer vinyl plank flooring in, beige paint w/white trim, and reface kitchen cabs w/new handles.

After learning more about owning a quad this becomes more fun, we currently pay 1270 of someone else mortgage (2bd/1ba/950sq.ft) and to learn my mortgage on a quad would be a fraction of that plus the added income...my fiance and I joke about living in all 4 apartments for 1/3 the price we pay now hah.



Real Estate Investor · Southport, Connecticut


Just to be cautious, you should check to see if the terms can change if you no longer occupy.

Best of luck with your investment. I started out in an owner-occupied multi-family (several decades ago, I must admit), so I think it can be a great way to learn how to select and manage a property.


Small_logo_realdataFrank Gallinelli, RealData
Telephone: 800-899-6060
Website: http://www.realdata.com
-- www.realdata.com


Multi-family Investor · Atlanta, Georgia


@Frank Gallinelli ah good point I did overlook the loan changing if I were to move out, I will put that on my checklist. Thanks again!



Real Estate Investor · Lombard, Illinois


Looks good. I think you need to add in the $10K rehab cost for your cap rate calculation though. Still over 10.5%.



· Dallas, Texas


@Ryan Halverson

I'm in a similar position. I have a 4-plex under contract now, but will not be living in it. Don't forget about PMI. Still looks like a good deal though.

Can you confirm the ability to get FHA financing? The lender I'm working with says minimum down is 25% and not eligible for FHA (only SFH and duplexes qualify). This doesn't seem right to me, but it seems to line up with fannie mae guidelines: https://www.fanniemae.com/content/eligibility_information/eligibility-matrix-082112.pdf



Multi-family Investor · Atlanta, Georgia


Thanks @Keith J. just recalculated and cap looks to be 10.97 with loan+cash outlay. Good catch.



Multi-family Investor · Atlanta, Georgia


@Bryce Y. I cannot confirm at this time BUT from a little digging I did on FHA loans last night I found this link

http://portal.hud.gov/hudportal/HUD?src=/buying/loans

which says a FHA 203b allows 3.5% down on 1-4 units MFH. The FHA 203k for rehabs doesn't dictate how many units it can be used on..so maybe just SFH?

I noticed you said you wouldn't be living in it, that is the key. Primary residence allows 3.5% but 2nd+ property will not and generally require 20-30% from what I hear.



Residential Landlord · Lima, Ohio


@Ryan Halverson

1. This looks like an FHA or VA loan. If so, they are very strict relative to the condition of the property. Are you sure you’ll qualify considering it needs 10k of rehab?
2. Median rents are over $1,000/mo in the area, but this one is $2,000 for 4 = $500/unit. Why so low? Something is not right. You are either slumming or something else is off. Be careful


Small_logo_03Ben Leybovich, JustAskBenWhy.com
E-Mail: [email protected]
Telephone: 1.888.508.9643
Website: http://www.JustAskBenWhy.com
Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Multi-family Investor · Atlanta, Georgia


Thanks @Ben Leybovich The home itself is completely livable and is currently rented 3/4. I would get an inspector before purchasing just to make sure the previous owner isn't hiding repairs. The 10k rehab is total so 2500/door and that is really just new flooring, kitchen cab faces, paint.

The unit is part of about 5 other buildings that look identical to it but everything else is a SFH with much higher selling prices. It literally is one street of apartments, I wouldn't consider it the slum but I would say its cheaper living.

I still plan on meeting with the tenants and asking them how they like the area/landlord/building. I also plan on visiting the neighbors in SFH and asking them how they like the buildings being there etc.

You made some great points I will check out before purchasing.



Residential Landlord · Lima, Ohio


@Ryan Halverson Who pays the utilites? Also, the 50% rule is a loose benchmark. You really should research all of the expenses and come up with an NOI.

Sounds like a decent residential area. I like this setup - few rentals sprinkled in with mostly SFR. I am just stuck as to why rents are so low. This could be a fabulous opportunity or a disaster. Do your research. Why is the seller selling? Is this listed on MLS?


Small_logo_03Ben Leybovich, JustAskBenWhy.com
E-Mail: [email protected]
Telephone: 1.888.508.9643
Website: http://www.JustAskBenWhy.com
Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Multi-family Investor · Atlanta, Georgia


@Ben Leybovich

Tenants pay utilities and I agree the 50% rule is a benchmark so I set my at 55% to be conservative. I do plan on putting together a full mark up for all expenses once I accumulate them.

My biggest obstacle right now is I am dislocated from the city where this house is at but in a few weeks I will be back and get to look at the site. Trying to do as much remote investigation as I can.



Residential Landlord · Lima, Ohio


@Ryan Halverson

Some of the questions I would need answered are:
1. Why is it being sold?
2. Is there currently a mortgage?
3. If so, is it institutional or private?
4. Is the title held in person’s name or corporation?
5. How long has the previous owner owned this for?
6. Are there any mechanical liens on this property?
7. Is there a bankruptcy or a divorce involved?


Small_logo_03Ben Leybovich, JustAskBenWhy.com
E-Mail: [email protected]
Telephone: 1.888.508.9643
Website: http://www.JustAskBenWhy.com
Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Multi-family Investor · Atlanta, Georgia


@Ben Leybovich

Awesome list, I will add this to my "questions to ask."
Thanks a ton Ben!



Real Estate Investor · Sterling, Virginia


Ryan, what is your source for neighborhood stats? I've been trying to find one and haven't had much luck. Thanks.

Nice spreadsheet. Once you start playing with numbers, they can be eye opening. For example, I included a net worth table out to 30 years in mine and it's entertaining to just plug in different numbers.



Multi-family Investor · Atlanta, Georgia


@Leonid Sapronov

Thanks Leonid, I try to make my conservative number 60% to include any fees. I will do an in-depth analysis once I feel the property is profitable.

Trying not to make a plug here but some of the sites I use are:
http://www.neighborhoodscout.com/va/mclean/
http://www.city-data.com/
http://www.greatschools.org/school-district-boundaries-map/?lat=38.9338676&lon=-77.17726040000002&level=e&q=mclean,%20va

With the City-Data, make sure to zoom in...you can actually zoom into a street level to find crimes stats etc.

I also use http://www.familywatchdog.us/ for registered sex offenders. One reason I look for this stat is because generally a registered sex offender cannot get a top level job and will have to settle for sub housing, and provides a guesstimate of the area. Plus it can drive families away and lower property value...just my opinion.



Real Estate Investor · Sterling, Virginia


Awesome, thanks for the info!





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