How to tell if its good deal?

12 Replies

Hi, I do not own any real estate yet but thinking to change that. After 2 years searching and working with realtor, I finally found 1 deal that I am thinking to buy 

  • Its a 2 family house and both units are rented. 
  • In Albany NY area, owner has to pay for Water bill and Trash Bill
  • Net Income (Cash-flow) = $595
  • Net ROI = 5.5% (its low but I think its good for first time bc right now I have zero real estate)
  • Cash-on-Cash Return = 16% (I think its good bc 401k retire plans returns are around 8%)

Other things to consider. New Roof

  • roof age = 20 years or 240 months (guessing
  • Cost of new roof $7,000 (guessing)
  • $7,000 / 240 = $30 per month (I added this in repairs)

New Furnace (i do not know if this is 2 or 1 furnace)

  • Furnace Age = 20 years or 240 months
  • Cost of new Furnace $2,500 (guessing)
  • $2,500 / 240 = $10 per month (I added this in repairs)

2 new Water Heaters (1 for each unit)

  • Water Heater Age = 12 Years or 144 months
  • cost of new Water Heater $1,000 Each
  • $1,000 / 144 = $7 per month for each water heaters

What you guys think? Should I put in offer? also, did I missed anything?

@Andrew Bailey

As an initial calculation it looks promising. I would be concerned with the Following
. Low Monthly maintenance for a 1910 property
. No set aside for reserves in case something breaks. Min 100 per month per unit
. No capital repair set aside (You will need it)

An older house requires maintenance,maintenance,maintenance

@Andrew Bailey a couple things.... you have vacancy at 10% but the dollar amount is wrong, should be $204

Maintenance and repairs is much too low. $300 - $400 is probably more reasonable.

But even with that, there is decent cashflow, if it's in a nicer area. If it's in a bad neighborhood it probably isnt a great deal

Hey @Andrew Bailey , numbers wise it looks like a pretty good deal. And it looks like you really went into detail on this property. Couple things I would consider as an agent in the area...do you know the tenant class your bringing in? Are there leases or are the tenants month to month? How are you calculating net ROI? Something people don't consider is the mortgage pay-down..your actual ROI may be higher. In Albany, as long as your aren't buying in Arbor Hill I think $129,000 is a pretty good price for most areas. Good Luck!

A lot of deferred maintenance on the subject property.   The roofing, H2O heater, furnace permit delay may force tenants to move into motels.  

IMO move on. 1910?

@Andrew Bailey

Couple bits of feedback:


Your maintenance budget looks a little bit low here. I often run it at 10% of gross rents on a pro forma for a property in 7/10-8/10 condition (arbitrary, I know. But you get the idea).

Those property taxes are pretty high, jeez. 

You need to include a management fee at the local going rate for property management to determine whether this deal makes sense. Investments are supposed to be to some degree passive, and if you're working to earn the returns, that is not a return on your investment.. that's a wage you're paying yourself to work for your own business. I also think everyone should use professional management so that they can start with a more businesslike mindset where you learn to effectively delegate and use services. A good management company will do a better job than you can with less effort. A good investment will still deliver your desired return after paying them.


Hope this is valuable feedback!

Hey @Andrew Bailey - I agree with @Elliott Elkhoury . I'm a real estate investor in Albany and what @Nate Monson said is accurate in regards to rent - if it's in Arbor Hill then good luck and double your expenses because those properties definitely need work. That being said I actually ran your numbers through a proforma I use and here is the break down for that: 

Purchase price: 129,900

Effective Gross Income: 22,086 (vacancy 10% of gross income; 2454)

Expenses:

Expenses%EGI
Taxes $ 4,618.00 20.9%
Insurance $ 1,500.00
Heat $ -
Electricity $ -
Water / Sewer $ 1,200.00
Trash / Recycling $ 180.00
Lawn / Snow $ -
Management $ 2,208.60 10%
Repairs $ 1,104.30 5%
Capital Expenditures $ 1,104.30 5%
Supplies $ -
Accounting / Legal $ -
Miscellaneous $ -
Total Expenses $ 11,915.20 54%

NOI: 10,170.80

Financing: 





Down Payment $ 32,475.00 25%
Bank Loan Amount $ 97,425.00 75%
Interest Rate5.50%
Closing Cost $ 7,794.00 6%
Loan Term (years)30Monthly Payment w/ ESCROW
Debt Service / yr $ (6,638.02)
Debt Service / mo $ (553.17) $ (1,063.00)

As is your property you're looking to purchase is valued at 7.8% cap rate and will produce cash flow of $3500/ year. This cash flow is not taking into consideration principal pay down through your monthly payment. Total amount out of pocket is roughly: $ 45,217.50.

There's a lot of information here to take in, but that's what I'm here for. If you have any questions go ahead and message me and lets see how we can get you into this property at a "right" price. 

@Account Closed

Thanks your example helped a lot. Do you know which area I should void and which area really good to invest near albany?

I am looking at colonie, rensselaear, guilderland, latham, north latham, cohoes, 

areas I am voiding area downtown albany, schenectady, and troy. just because of high tax and building looks like they about to fall down

@Andrew Bailey

You're welcome! I'm also a real estate agent so if you want to shoot me a message then we can take this conversation offline and it'd be a easier to communicate as well. Shoot me a message and I can surely help you out with all your concerns and let's see if I can get you into a right home for the right needs :)

At that price range for a 2 family you're likley in a rougher section of albany (however you said albany area so im not sure if you are even speaking specifically to the city or surrounding), so as others said budget a lot more for damage and maintenance. 2 families in college and better neighborhoods rarely go for less than 200k in the city. 

You mentioned furnace replacement for $2500, that sounds on the very low end. You might want to double check if its really a furnace or if its a boiler (most of older albany have boilers not furnaces) and those are significantly more expensive then furnaces. Also is it only one of the furnaces or both?

Hey Andrew 

Welcome to the possible start of your first investment property. I have a few in the area, Schenectady, Glens falls and Ballston Spa. 

A quick glance the numbers could be tweaked a bit. 

1. 25% down payment. Most banks will want that. A few may ask for less but factor $25% down to be conservative  

2. I generally tend to also add property management costs and as others have noted. It’s a good rule of thumb when really drilling through the numbers. The idea is that if you had, maybe injury or an emergency where you can’t deal with the day to day,  you can hand over management and still have cash flow if the numbers work. 

3.  Your maintenance costs are a bit low. Houses in this area are old and stuff goes goes out all the time unless you are putting more money for a thorough initial upgrade. 

4. If you have any questions or wish to bounce of ideas let me know. 

Originally posted by @William Amiteye :

Hey Andrew 

Welcome to the possible start of your first investment property. I have a few in the area, Schenectady, Glens falls and Ballston Spa. 

A quick glance the numbers could be tweaked a bit. 

1. 25% down payment. Most banks will want that. A few may ask for less but factor $25% down to be conservative  

2. I generally tend to also add property management costs and as others have noted. It’s a good rule of thumb when really drilling through the numbers. The idea is that if you had, maybe injury or an emergency where you can’t deal with the day to day,  you can hand over management and still have cash flow if the numbers work. 

3.  Your maintenance costs are a bit low. Houses in this area are old and stuff goes goes out all the time unless you are putting more money for a thorough initial upgrade. 

4. If you have any questions or wish to bounce of ideas let me know. 

Any 3+ unit buildings in Glens Falls you're looking to sell? 

I had a quote to replace a roof recently on a 2 Family - $12,000

Furnace - probably closer to $3,500 with labor.

As mentioned already, at that sales price sounds like there is a lot of other deferred maintenance and/or the area is not very good.