analyzing property, please help a newbie out

10 Replies

Hi! I have been busy reading and listening, just attended the webinar and wanted to try out the rental property calculator. Every property I have tried has been negative cash flow via the calculator. What am I doing wrong? Please help!

Included some links, hope you can view it.

https://www.biggerpockets.com/buy_and_hold_results...

file:///C:/Users/staff/Desktop/Rental%20Property%20Calculator%20from%20BiggerPockets.html

https://www.realtor.com/realestateandhomes-detail/...

The links don't work for me @Helen C. but I willing to bet your not doing anything wrong. A quick napkin test I use to pre-qualify opportunities before fully analyzing them or running them through any calculator is the 1% rule. By that I mean, for a property that is listed for $100,000, I need to see rents to be 1% of that $100,000. So monthly rents have to equal $1,000 or more before I go any further in my analysis. Helps me efficiently kick over a lot of rocks to find that jewel!

7614 French Springs St, Las vegas, Nevada 89139

MLS number: 1962206.

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$1,300.00MONTHLY INCOME

$1,636.01MONTHLY EXPENSES

-$336.01MONTHLY CASHFLOW

3.65%PRO FORMA CAP

$10,140.00NOI

$59,500.00TOTAL CASH NEEDED

-6.78%CASH ON CASH ROI

3.69%PURCHASE CAP RATE

ExpensesIncome50% Rule
Total operating expenses:Mortgage expenses:
Vacancy:$65.00Repairs:$65.00
CapEx:$26.00Management:$143.00
P&I:$1,181.01Property Taxes:$156.00
$275,000PURCHASE PRICE
Purchase Closing Costs$2,500.00
Estimated Repairs$2,000.00
Total Project Cost$279,500.00
After Repair Value$278,000.00
Down Payment$55,000.00
Loan Amount$220,000.00
Loan Points$0.00
Amortized Over30 years
Loan Interest Rate5.000%
Monthly P&I$1,181.01
Total Cash Needed$59,500.00

Financial Info

0.47%2% RULE $58,000.00TOTAL INITIAL EQUITY

17.63GROSS RENT MULTIPLIER

0.72DEBT COVERAGE RATIO

Analysis Over Time

1% /yearEXPENSE INCREASE

2% /yearINCOME INCREASE

3% /yearPROPERTY VALUE INCREASE

Year 1Year 2Year 5Year 10Year 15Year 20Year 30
Total Annual Income$15,600.00$15,912.00$16,885.94$18,643.44$20,583.87$22,726.25$27,703.18
Total Annual Expenses
Operating Expenses
Mortgage Payment
$19,632.09
$5,460.00
$14,172.09
$19,686.69
$5,514.60
$14,172.09
$19,853.79
$5,681.70
$14,172.09
$20,143.61
$5,971.52
$14,172.09
$20,448.22
$6,276.13
$14,172.09
$20,768.37
$6,596.27
$14,172.09
$21,458.48
$7,286.39
$14,172.09
Total Annual Cashflow-$4,032.09-$3,774.69-$2,967.85-$1,500.17$135.65$1,957.89$6,244.70
Cash on Cash ROI-6.78%-6.34%-4.99%-2.52%0.23%3.29%10.50%
Property Value$286,340.00$294,930.20$322,278.19$373,608.75$433,114.94$502,098.92$674,778.97
Equity$69,585.80$81,587.87$120,254.98$194,656.21$283,770.34$390,751.93$674,778.97
Loan Balance$216,754.20$213,342.33$202,023.21$178,952.54$149,344.60$111,346.99
Total Profit if Sold *-$19,716.89-$12,262.63$14,221.03$73,502.48$154,596.89$261,436.42$572,322.66
Annualized Total Return-33.14%-10.90%4.38%8.38%8.91%8.79%8.19%

* Property value minus net cash expenditures and sales costs

@Helen C. So I'm guessing that you're using the calculator correctly.  Here's where you're going "wrong" (and it's not really "wrong")...

1.) You picked one of the hottest markets in the U.S. to look at a property, Las Vegas.

2.) It's built in 2004, just listed (so no time for a price reduction), looks to in really good condition, and is an SFR.

Because of 1 and 2 you're competing with homeowners that want to live there, send their kids to school there, etc.  They're not trying to rent it out for cash-flow.  It's the same where I live in Encinitas, the Bay Area, Seattle, and tons of other markets that are desirable.  

It's why people constantly talk about "cash-flow markets" on BP. You see just about any city in Ohio, Memphis, etc. brought up on a daily basis. Why? Because they actually do cash-flow out there. You could analyze every single SFR in Encinitas (where I live) that's listed and I can (all but gaurentee) tell you that none of them will cash-flow. Appreciation has just outpaced rents.

@Helen C. I think Andrew summed it up really well. I am also a newbie REI from CA and looked at Vegas as one of the starting markets because I go there often and locals tell me how its heated up over the past 4 years. However, the numbers really didnt work for me as I am looking for cash flow.

Now I have set my sights on the midwest primarily - Memphis, Little Rock, Kansas City and Indianapolis.

@Helen C. The problem isn't the calculator. It's the markets that you're looking at. Las Vegas was a good market at the bottom of the crash when you could probably have bought this same property for around $100K. There's no way you're going to have positive cash flow on a $279,500 with rents of only $1300/mth. Not every market is a good cash flow market. If you're going to invest out of state, you can do so much closer to home in the Midwest. You can get $1300 rent in much nicer A class neighborhoods in markets like Indianapolis and Kansas City on properties in the $130K price range and have a much better asset. I've been active in both these markets for several years and know them well. I'd be happy to talk to you and share some insight if you'd like.