Running numbers on a potential rental property

6 Replies

Hello BP!

This is my first post on here and I'm looking forward to hearing what knowledge is out there! My name is Caylon I'm a superintendent for a construction company in Bellingham, Wa. I used to run my own operation as a General Contractor doing remodels - residential and commercial, however now excited to become a real estate investor! By this point I've read quite a few books and after recently discovering Bigger Pockets, I've been pretty addicted to the podcast which has also been a huge wealth of information. 

So for some context onto type of property, and plan I have in place for my first deal; first is a 6 month goal to be debt free, and a 10 month goal to my first deal (which is when my current lease ends in July of 2019). I want to start actively searching for that property 3-4 months before my lease ends, and be passively looking, learning, and practicing for the whole 10 months (and hopefully well beyond!) I plan on getting into something to house hack; Preferably small multi-family but I wouldn't be opposed to a single family. And eventually will move out and keep it as a rental.  

Something I have been running into when I've been scanning for potential deals to run the numbers on, is how to run the numbers on it! I know there is so much that goes into it; and this is looking and a potential rental property so determining rent, mortgage, expenses, etc. It just always feels like I'm missing something, or knowing that there is something I don't know! So I would love some guidance and to hear how you other investors look at properties, generally run the numbers and determine if it will cashflow or if is a good potential worth further investigating. How both to quickly estimate while scrolling online and then what anyone does when they find one and want to look deeper into it. If anyone has tips, tricks, or any systems I would love to hear! 

Thank you for your time and looking forward to connecting with other investors out there. 

Caylon Coomes

@Caylon Coomes   Considering you'd be house hacking and therefore living in one of the units, I would start by speaking with a loan officer about max purchase power.  With that in mind, you'll know what your mortgage would look like.  MFRs in Bellingham are very, very expensive so it's critical to know what you can afford long before you start looking and scheduling the retirement parade :)  

As for running numbers, you'll want to include the items that are important to YOU.  Everyone has a different take on what should be counted, and how much (take cap-ex for example).  Plus, this first purchase should line up with your long term plans, whatever they may be.  

Lastly, since it's so expensive I would do whatever possible to save as much money towards the down payment.  But step one is talk to a lender.  

Hi Clayton, 

There are a few rules of thumb you can use for quick evaluations like the 1% Rule and the 50% Rule. Both can be helpful but do not work for every single property. It's best to find out what your average expense-per-unit is in your market for the types of properties that you are looking at. This can be found by talking with property management companies and by doing your own research.

@Brandon Turner wrote a good article on estimating rental property expenses a while back: https://www.biggerpockets.com/renewsblog/2014/12/02/rental-property-expenses/

As Patrick says, Bellingham is an expensive market. There is a lot of money flowing up from Seattle and probably some flowing down from Canada as well. Asset prices in this class are quite inflated, IMO. If you want cash flow you are almost certainly going to have to source deals off-market.

Best of luck,

Andrew

Updated over 2 years ago

Caylon, oops, sorry for the misspelling of your name.

Hey guys thanks so much for the replies and info, I looked at both of those links and they had some good info that I will definitely implement. Also as Patrick said I found it pretty difficult to find affordable on market MF deals, however I have been doing quite a bit of driving for dollars and have found some potentials that are fixer-uppers so when it comes time I will be focusing my effort on finding off market deals. Ill continue to get some practice in running some numbers and again really appreciate the info. Something that I've also found to be somewhat difficult is estimating ARV and what the property could potentially rent for. Anyone haver any tips for that?

@Caylon Coomes just watch your expectations with driving for dollars.  just because you see a fixer doesnt mean the seller has any desire to sell.  There are full blown professional wholesalers in Whatcom county spending $20k a month on marketing and they can't get anything, where as last year they could get 2 a month.  And even if you did get something, did you get it cheap enough?  and even if you got it cheap enough are there buyers for that property in that area?  

Quite frankly most wholesalers think all they have to do is get a property under contract and BOOM! it's payday.  I thought that way for a bit a few years ago.  Unfortunately it's much more difficult than the gurus make it out to be, especially on the west coast and in a seller's market.  

As for ARV, my biased opinion is to find an agent willing to do CMAs for you. As for rent, rentometer.com is the best.

@Caylon Coomes

I agree with Patrick. You can come up with rough ARVs using Redfin or Zillow to look at recent comparable sales within a radius of your target properties, but it can be tricky to come up with a hard number if you don't know the submarkets very well. I like to hire an agent to do a CMA after I get a property under contract and again when I am ready to resell.

As for rents, I use rentometer.com. Zillow also has a rental Zestimate that you can cross-reference.