Help analyze a property.

5 Replies

Dear members, 

My name is Moshe, very new to RE investing, reading and learning as I go. I was able to meet a wholesaler with the following deal: 

Location: Shamokin, PA

Age: 50 years

Units: 10-2 BD's and 10-1 BD's

Average Rent: $600 to $750

Property is vacant but has high demand for tenants

Market rent same as average rent

Semi pitched roof needs minor patching

All utilities are metered for each unit both electric and water - tenants pay all utilities

Property tax: $2500 a year

Needs full renovations

Terms: Pay in full $275k  or 100k down with 4 years of installments for total $325k

I would appreciate any pointers to help me analyze this deal.

There are a few areas that you need to analyze: Operating Revenues, Operating Costs, Repair (one-time) costs, and Financing options.

I would start by looking at the after-repair rental rates for both 2 and 1 bed units, multiply that out by your 10 (2 bed) and 10 (1 bed) units to get a total monthly revenue.

Then, figure out the cost of repair per type of unit (~10-15K/unit depending on finishes and extent of repairs necessary) 

Figure out the cost of repair for common areas (exterior, hallways, parking, main utilities, etc).

Use common metrics for operating costs (10% management fee, 10% repair, 10% vacancy etc, 10% capex, etc.)

Then figure out the NPV of the deal with both of the financing options to see what works better for you. It seems like they are essentially charging you 6% interest if you finance it... so if you would be doing a commercial loan, you would use that interest figure to compare against their rate.

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Originally posted by @Matt Vogt :

There are a few areas that you need to analyze: Operating Revenues, Operating Costs, Repair (one-time) costs, and Financing options.

I would start by looking at the after-repair rental rates for both 2 and 1 bed units, multiply that out by your 10 (2 bed) and 10 (1 bed) units to get a total monthly revenue.

Then, figure out the cost of repair per type of unit (~10-15K/unit depending on finishes and extent of repairs necessary) 

Figure out the cost of repair for common areas (exterior, hallways, parking, main utilities, etc).

Use common metrics for operating costs (10% management fee, 10% repair, 10% vacancy etc, 10% capex, etc.)

Then figure out the NPV of the deal with both of the financing options to see what works better for you. It seems like they are essentially charging you 6% interest if you finance it... so if you would be doing a commercial loan, you would use that interest figure to compare against their rate.

 10% for cap ex? your roof needs replacement in 10 years at 850/month rent your roof eats all the cap ex no room for appliances, floors, walls, paint, fixtures etc. i dont see the numbers working our in this case. 

So 120 periods (10 years) at $85/mo = 10,200 in CAPEX reserves (at 10% as mentioned). Is this enough to cover your roof, water heater etc?

The alternative to just applying a basic percentage would be to build a 'bottom-up' budget of what your CAPEX expectations are, then back into how much you need to load for each month. Example, over 15 years you'll need 20K of CAPEX. 20,000/(15*12) = $111.11/ month.