practice analyzing deal # 6
Investor · Des Moines, IA · Member since 2019 · 62 posts · 17 votes
| 1% rule = | desired rent | ||||||
| 89,900 | 0.01 | 899 | |||||
| Des Moines, IA 50316 | |||||||
| price | 89,900 | ||||||
| closing co | 2500 | ||||||
| monhrent | 1,200.00 | ||||||
| repairs | 5000 | ||||||
| total cost | 98600 | ||||||
| Loans | |||||||
| price | 89,900 | Down % | | |||||
| downpay | 3146.5 | 3.50% | FHA | ||||
| total loan | 86,754 | ||||||
| Money Needed = | $11,630 | ||||||
| MONTHLY ESPENSES | |||||||
| PAYMENT | $395 | ||||||
| tax | $130 | M insure | H insure | ||||
| insurance | $110 | 79 | 31 | ||||
| vacancy | 60 | 5% | |||||
| repairs | 84 | 7% | |||||
| management | 120 | 10% | |||||
| cap | 84 | 7.00% | |||||
| utilities | 0 | 0.00% | |||||
| TOTAL | $983 | ||||||
| EVALUATION | |||||||
| MONTHLY INCOME = | 217.00 | ||||||
| YEARLY CASH FLOW= | 2604 | ||||||
| CASH ON CASH = | 22% | 8%+ = good | 15%+ = amazing | ||||
| price for good cash on cash = | already good | ||||||
| for amazing cash on cash= | already amazing | ||||||
| if repairs exceed $30000 cash on cash less than good unless price drops |
@Dieudonne T Nsabishaka the numbers look good, but I would encourage you to look at small multifamily. It may cost you a little more to get into it, but you increase your return and spread your risk out over 2-4 tenants instead of 1.
If you have a single family and that tenant doesn't pay rent you have to cover the expenses of the property. If you have a duplex or a four plex when the other tenants pay you reduce the amount you have to pay out with a duplex, and with a four plex you may not have to pay anything personally.
I looked on realtor for the Des Moines market and found several pending for less than $200k. I even found a multifamily for $99k which is $10k more than what you're doing your practice on.
Pictures didn't show much but if you could buy it for the same $89k you're practicing on you're ahead of the game.
@Dieudonne T Nsabishaka the numbers look good, but I would encourage you to look at small multifamily. It may cost you a little more to get into it, but you increase your return and spread your risk out over 2-4 tenants instead of 1.
If you have a single family and that tenant doesn't pay rent you have to cover the expenses of the property. If you have a duplex or a four plex when the other tenants pay you reduce the amount you have to pay out with a duplex, and with a four plex you may not have to pay anything personally.
I looked on realtor for the Des Moines market and found several pending for less than $200k. I even found a multifamily for $99k which is $10k more than what you're doing your practice on.
Pictures didn't show much but if you could buy it for the same $89k you're practicing on you're ahead of the game.
@Dieudonne T. - Costs to close are low. You will need to establish escrows, so paying a years worth of insurance first, and prepaying some taxes at close. FHA, I have read, also has a 1.75% of loan balance up front fee for MIP. Depending on your tax bills and when you buy, you may need another several thousand dollars at the closing table.
I am not sure what your M Insure and H insure are, but FHA has a monthly MIP fee on loan balance too, so make sure that is included.
Who is leasing the property? In my management contracts in the past, the manager did... for one month's rent on new and 1/2 month's rent on renewals. If you hire an agent, they will charge the same. Or you do it yourself.
Then you get into your reserves, which is where underwriting is really a guess, and reality can crush people. If this is a rougher area, you will have a lot of turn over, and more repairs at each turn. If it is an older property, your Capex budget is needs to be much higher. Water heater just cost me $650 at a property. Range a year ago was $500. New roof last year was $6000. Chasing a roof leak (flashing, cap, sealing blocks) cost me about $3k and still didn't fix the issue. Exterior paint, front porch, retaining walls, landscaping items... I have had to replace furnace, replace AC units, fridges, remodel kitchens and baths. An entire repaint of the interior will likely cost you a few thousand. These things don't happen every year, but everything wears out, and if you hold long enough, you will be on the hook for it.
@Dieudonne T. seems pretty well thought out. I am not sure about the area so not positive about how accurate your numbers are. I would try and find a local landlord and ask them if these are realistic or numbers he is seeing with properties of a similar type. For me starting out I think it is hard to go wrong with a property that will have a payment under 500/month. If things do go sideways that payment is a lot easier to come up with than a larger one.
Best of luck!
@Carl Millsap
This makes a lot of sense, especially having another tenant cover some portion of the Monthly expenses if one leaves In a duplex or quad Plex Instead of me having to cover all of it when there’s a vacancy.
I did not know of that 1.75% potential upfront MIP I will talk to my banker and find out if that is the case and then include it in my future practices.
the m insure is the monthly MIP and the h insure is for home insurance, I used an only mortgage calculator for those figures.
for who leasing the property i will do my self so I can get some on the job training in that area. I include the management just for in the future when i stop management it my self
the reserves is one of my biggest concern as well due to murphy's law, its really hard to estimate exactly what will go wrong what would you say is a good cap ex for an older property?
thanks for the tips on talking to local landlords, I suppose I could find a couple of for rent properties call that phone # and so long as its not a management company see if one of the landlords is willing to look at the numbers.
@Dieudonne T Nsabishaka some people will call me crazy, but I have changed my perspective since I started investing.
I put together a spreadsheet once (then deleted it) with all systems, items etc. I.e.
roof. Useful life: 25 yrs. cost $6,000. Monthly reserve: $20
A/c. Useful life 15-20 yrs (I go conservative at 15). Cost 2500 monthly reserve 13.89
Furnace: similar to AC
Then added things like appliances, flooring, interior and exterior painting, ceiling fans, decks, porches, stoops, retaining walls, concrete outside, fences, etc. I also added in full kitchen and bath remodels every 20 yrs to keep rents at market.
All told I got to about $400/mo in capex per month, if everything was at the start of its useful life and I wanted to have the reserves available when they came up, whether that be 5 yrs or 30 yrs from now. I did not account for inflation, and this was prepandemic, so did not account for the massive increase in construction materials, that I believe is here to stay. And of course, each house will be different. A brick house has tuck pointing needs, but no painting. A sided house has painting or residing, but no tuck pointing.
you really tried to predict for everything in that excel, I will definitely increase my capEX and also build up my savings so if something does happen i won't have to get a loan to fix it.
The only other thing I would add beyond what everyone else has said is to take into account possible appreciation as well. I know your first deal or any deal doesn't have to be perfect and shouldn't. If it's good enough just take the plunge and start. But also use areavibes.com to check out the local school system and crime rate to see what's going on!
Also, don't force the duplex, triplex, fourplex thing. If the numbers crunch right and it's right for your area, don't listen to just general advice when you've looked at deals in your market.
This looks great to me. The number I'd question first is the $5000 in repairs. The "total cost" should be the "total cost." So you want to be sure of that. You're taking a loan so there will be an inspection and an appraisal. That adds a lot of safety. If you can get a house that rents for more than 1% of the total cost and only need 3.5% for the loan, it's hard to miss. Just make sure you've got the total cost number right.
Further, when thinking about capex I often go with a lower number because if I've done my due diligence then by the time the big repairs start coming in, ie roof, hvac, the rents have also gone up but the mortgage hasn't. At the same time I carry enough in cash that I'm ready for a bad situation whereas this being your first home you're a little further out on a limb.