Investing in real estate doesnt make sense
Hi!
I'm putting together a sizeable project, and I'm preparing a budgeting and projecting cash flows. The math seems to fall a little short of what I'd expect, and I'd love for someone to pick it apart or give me some more insight. Here's what I've got:
Land: owned
| Misc. Administrative Costs | ||||
| Bldg permits/applications | $1,200.00 | |||
| Land Development Costs | ||||
| Surveying/Site Plan | $5,000.00 | |||
| Sewage access | $55,000.00 | |||
| City tap-in fees | $6,150.00 | |||
| Building Development Costs | ||||
| Feature | Single Unit | Per Quad | % of total | |
| Foundation | $6,497.09 | $25,988.35 | 9% | |
| Floor Structure | $8,662.78 | $34,651.13 | 12% | |
| Wall/Exterior Finish | $8,662.78 | $34,651.13 | 12% | |
| Roof & Cover | $7,218.99 | $28,875.95 | 10% | |
| Window/Doors | $3,609.49 | $14,437.97 | 5% | |
| Interior Finish | $5,775.19 | $23,100.76 | 8% | |
| Floor Finish | $3,609.49 | $14,437.97 | 5% | |
| Interior Features | $3,609.49 | $14,437.97 | 5% | |
| Bath Detail | $2,887.59 | $11,550.38 | 4% | |
| Kitchen | $5,775.19 | $23,100.76 | 8% | |
| Electric | $7,218.99 | $28,875.95 | 10% | |
| Plumbing | $8,662.78 | $34,651.13 | 12% | |
| Total: | $70,073.64 | $288,759.46 | 100.00% | |
| Location Factor (1%): | $70,774.38 | |||
| Two Story Adj. (2%): | $72,189.86 | |||
| * figures calculated using the 2020 National Building Cost Manual | ||||
| Assumed overrun: | 5.00% | |||
| Number of Quadplex: | 3 | |||
| Total estimated budget: | $976,942.29 | |||
As you can see, the total budget would be roughly $1M. The quadplexes consist of 4 units (duh), each unit with about 829 sq ft. The plan is to charge $1/sqft, which coincidentally matches the local competitive landscape. Here's what the cash flows will look like:
- Income: $829/u/m or $119,376/y
- Expenses:
- Mortgage/Loan interest: $347.22/u/m ($1M @ 5% on 12 units)
- State Taxes: $6.78/u/m or $976/y ($0.122/$100 valuation, $800K value, 8,000 units taxable)
- Local Taxes: $22.44/u/m or $3,232/y ($0.404/$100 valuation, $800K value, 8,000 units taxable)
- Insurance: $30.77/u/m or $4,432/y (local property tax + $100/door – needs more research)
- Vacancy: $70.84/u/m $850/m or $10,200/y (8.33% vacancy on 12 units)
- Landscaping: $6.67/u/m or $960/y (once a month for $80)
- Garbage: $15.84/u/m ($190/mo for a dumpster, twice per week)
- Gutter cleaning: $1.74/u/m (600’ gutter over 12 units)
- Cap Ex: $102/u/m (12%/month)
- Pest control: $6.95/u/m ($1,000/year)
- Misc office: $2.78/u/m ($400/year)
- Accounting: $6.95/u/m ($1,000/year)
- Marketing: $3.48/u/m ($500/year)
- Total: $634.19/u/m
- Net:
- Including interest payments: $194.81/u/m or $28,052.64/y
- Excluding interest payments: $542.03/u/m or $78,052.32/y
The expenses may be slightly off here or there, but generally paints an interesting picture. In May of Year 12 is when the balance, principal, and interest all intersect. From there, it becomes a lot easier to manage the interest payments vs. the principal amount and really cut down on the debt. I guess my questions are these:
- Does this "make sense"? I know a lot of you are very anal about your numbers, so I'd love to hear your opinions.
- How do you guys think about long term debt? I personally would be thrilled to clean it out as fast as possible.
- What other benefits am I not including in the calculations? Tax benefits, or appreciation?