Could use a second set of eyes on a quick deal.

Question

I have deal I am putting an offer in on tomorrow and wanted some thoughts from the group.

Its a $599 p.p. with a current rent roll of $5300 monthly. I can get rents to $5700-$5800 I believe. I spoke with my realtor. My monthly costs are $1500.  Just wanted a second set of eyes is all. I would also be throwing a lot of extra money at the mortgage first 5 years  from another property that close to paid off.

Matt Walden · Answer

That is from this from Bigger Pockets.com look under tools > Rental Property Calculator.

Matt Walden · Answer

I did not, I do think I will have some minor work to do but not more than 5-10k

James Free · Answer

Did you budget any capex or repairs? I don't see them in your screenshot.

Matt Walden · Answer

built in 1975, i walked the units yesterday and all were in great condition

Brendan Griffin · Answer

Looks like a decent deal.  I think a lot depends on the age and condition.  You may want to figure in maintenance and capex.

Scarlett Mulligan · Answer

@Matt Walden

I like the image you have attached & would like to use the software that produced it.  Can you share where that came from.  Thanks!

Best of luck with the deal.

Matt Walden · Answer

The realtor here is my neighbor for 20 years so I do trust him, but  also verified rents on Zillow and MLS. The expenses are actually padded a tiny bit and I know I may have some additional expenses in the coming months and years but the area is so competitive you need to kind of jump in.

This deal is not appreciation. so it sounds like its a decent deal just wanted some additional opinions. I really appreciate the feedback.

Jeff Brower · Answer

Your operating expenses seem way low. How many units? Electricity, insurance, taxes, water/sewer, and gas sound about right if this is a one or two unit property, but I am guessing it is more. 50% rule with the current rent roll only gives you a $300 cash flow each month. This also doesn't include property management. Even if you are intending to initially self manage, you should include the projected 8-10% management cost as you are going to want to have it managed at some point in the future if you are looking for a passive investment and not another 'job'.

Gentry B. · Answer

Hi @Matt Walden,

Depending on the age of the unit, if you won't be paying too much in repairs, I'd do it.  $1300 month cash flow for $119k is worth it to me.  As the caveat, I'm much more cashflow centered than appreciation.  But you have a good interest rate, and I have found the BP calculator to be very conservative, which is what you want.

Samir Shahani · Answer

@Matt Walden

Firstly, not sure about who your realtor is .. but generally speaking, the realtor is going to tell you what you want to hear.  So be sure that you can get those rents up if it is a big factor in your decision.

The deal looks fine .. although in your statement, you suggested that monthly expenses are $1500, whereas .. including P&I you're looking at close to $4,000 a month in expenses.   This doesn't seem to take into account incidentals or other potential issues which may drop your cash on cash return significantly.

Consider the deal, your up front investment, the return, etc.

If you're still comfortable, go with it.  If you need more advice, feel free to PM me.