Deal Or No Deal

12 Replies

Hi Everyone : Newbie Here Asking a question .I found a single family home. This is what I got so far. Just wanting to know your thoughts. House needs about 5k in upgrades to be rented out. Does this look like a Deal Or No Deal ? This would be my first investment property.

3 Bed / 2 Bath, 1654 Square Feet

$82,680

Cash Flow: $6,030 /yr
Cap Rate: 12.23% /yr
Cash on Cash: 33.15%
Gross Yield: 18.14%

@Reginald Dave

Welcome to the Site! 

What kind of area is it in? If you have the best cash cow of the century it's not going to matter if it's not in an area that people want to live. SFR's need to be occupied 100% of the time to produce cashflow. I can't say deal or no deal for you but i would say if the area is right then it looks pretty good.

Thanks for asking!

Ben Biggs, Real Estate Agent in CA (#02016327)

@Reginald Dave

It's hard for me to give you any recommendation because you didn't provide any raw data on the operating income/expenses, as well as the financing you will be using.

Do the returns you posted look attractive? Yes they do! But how accurate they are is the real question...

Without knowing much about the property and the market, I would estimate that you need monthly rent of $1,500+ to achieve these returns. What is the actual going rent for this type of home in the area?

Originally posted by @Anton Ivanov :

@Reginald Dave

It's hard for me to give you any recommendation because you didn't provide any raw data on the operating income/expenses, as well as the financing you will be using.

Do the returns you posted look attractive? Yes they do! But how accurate they are is the real question...

Without knowing much about the property and the market, I would estimate that you need monthly rent of $1,500+ to achieve these returns. What is the actual going rent for this type of home in the area?

 Rents in this area are going on the high end are $1450.  And about $1272. on the low end. Total monthly expense looks to be around $700.00 I'm looking at doing a convent. loan with maybe 20 to 25% down. Thanks for your response.

Originally posted by @Reginald Dave:
Originally posted by @Anton Ivanov:

@Reginald Dave

It's hard for me to give you any recommendation because you didn't provide any raw data on the operating income/expenses, as well as the financing you will be using.

Do the returns you posted look attractive? Yes they do! But how accurate they are is the real question...

Without knowing much about the property and the market, I would estimate that you need monthly rent of $1,500+ to achieve these returns. What is the actual going rent for this type of home in the area?

 Rents in this area are going on the high end are $1450.  And about $1272. on the low end. Total monthly expense looks to be around $700.00 I'm looking at doing a convent. loan with maybe 20 to 25% down. Thanks for your response.

 Also the income looks to be about $500.00

Originally posted by @Ben Biggs:

@Reginald Dave

Welcome to the Site! 

What kind of area is it in? If you have the best cash cow of the century it's not going to matter if it's not in an area that people want to live. SFR's need to be occupied 100% of the time to produce cashflow. I can't say deal or no deal for you but i would say if the area is right then it looks pretty good.

Thanks for asking!

 Ben Thanks for your response !!! The area is average middle income are. I wouldn't say its in a war zone or any thing like that. the homes seems to be a little older.

Reginald, 

Thanks for sharing this with the BP community. I've been more involved in multi-family over the years but I have colleagues who have been involved in single family. They're numbers never have looked this good. It sounds like you have a good understanding of the market. My advice is "jump in" and learn later. Just understand, typically, the numbers are never as good as you think. It looks as though even if your numbers fall off a bit you will still be cash flowing. 

Best of luck Reginald. Keep posting deals.

@Reginald Dave

Using the additional numbers you posted, I don't see how you can get the returns in your original post. Here is the math (I could be wrong on the expenses, as I didn't know what you counted in them and what you didn't):

Purchase:

Purchase Price: $82,680

Down: $16,536 (20%)

Cash Needed to Close: $24,016 (down payment + $5k rehab + 3% closing costs)

Operation (Monthly):

Gross Rent: $1,350

Vacancy: $135 (10%)

Oper. Income: $1,215

Oper. Expenses: $675 (you said $700, I used 50% of Gross Rent to simplify)

NOI: $540

Mortgage: $355

Cash Flow: $185 ($2,219/year)

Returns:

Cap: 7.8%

COC: 9.2%

1 Year ROI: -18.2%

Rent to Value: 1.6%

GRM: 5.1

Not a terrible deal, but doesn't match the returns you think you will be getting. Feel free to correct me, though!

Originally posted by @Joey Palmer :

Reginald, 

Thanks for sharing this with the BP community. I've been more involved in multi-family over the years but I have colleagues who have been involved in single family. They're numbers never have looked this good. It sounds like you have a good understanding of the market. My advice is "jump in" and learn later. Just understand, typically, the numbers are never as good as you think. It looks as though even if your numbers fall off a bit you will still be cash flowing. 

Best of luck Reginald. Keep posting deals.

 Thanks for your Response !!!

I agree with @Anton Ivanov  His numbers are more accurate, and use his rules of thumb.

Here is quick way to analyze....Take the rent subtract the vacancy rate, then subtract 50% This is your NOI....Divide that by the purchase price and this gives you the cap rate....Not that is matters much in single family homes....but it is a good gauge...I don't' buy anything less than a 12% cap....

Cash on Cash return and total returns are calculated totally different, though very important, I don't think it will come into play with what you are doing if you are buying SFH.

This is why I don't like rules of thumb like the 50% rule to seriously analyze a property. Yeah, it might be good to use for a sanity check to see if further investigation is even needed. In this example, I could easily see the operating expenses being ~$125 a month less in my area which dramatically increases your return. You need dig into the details and look at the operating expenses closer. Taxes, insurance, property management, leasing fees are all relatively easy information to get that can be accurate. If you are near buying, you need the hard core information, not rules of thumb. Depending on location, a lot of people would take $90K all in for $1350 rent all freak'n day.

Originally posted by @Daren H. :

... Depending on location, a lot of people would take $90K all in for $1350 rent all freak'n day.

Exactly. Sounds like a good deal. 

My main concern is the $5K for repairs. That amount would barely cover paint and carpet (unless you have free labor or maybe cheap materials).  But even at $10K repairs, still seems like a good deal for the posted rent. 

Originally posted by @Steve Babiak :
Originally posted by @Daren H.:

... Depending on location, a lot of people would take $90K all in for $1350 rent all freak'n day.

Exactly. Sounds like a good deal. 

My main concern is the $5K for repairs. That amount would barely cover paint and carpet (unless you have free labor or maybe cheap materials).  But even at $10K repairs, still seems like a good deal for the posted rent. 

 Thanks for the response from all.  The 5 k is for paint and some minor cleanup. ( trash removal )

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