I'm a new landlord as I got two SFH's in 2017, the first in January and the 2nd in December. I had to evict my first tenant and she drug it out to the last minute. Basically, it took 2 months, court, a visit from the deputy's and finally at the last possible minute, she got out.
I'm retiring from my current job soon with a pension. I also have access to my funds in my 457 plan, deferred compensation. For years, I was thinking I'd roll the entire amount into my Traditional IRA as I could defer taxes. I've invested in stocks for almost 30 years now. I learned what I was doing though in 2005 and since then, my XIRR is around 17%. I don't think I'll get that with real estate, but I like the idea of diversifying into real estate.
Let's say my 457 plans funds, after taxes, if I withdraw the funds will be around, plus or minus, $40K.
I'm analyzing a commercial/residential property. It has 9 commercial spaces and 5 residential. The monthly gross income averages $5570.
Mortgage with P and I, water, sewer, insurance, taxes, electric and such comes to $3569.
I used 7% for repairs ($389.90), Cap Ex ((389.90) and 5% for vacancies (278.50)
So, I came up with a cash flow of $5570 minus expenses of $4628 which comes out to $942 a month.
If I pay a 20% down payment and closing costs, it will be about $116K.
So, the COC ROI seems to be about 9.744%
Not as good as my stocks, but still not too bad.
However, my credit union says they can get creative with my financing and use my equity in my personal residence and/or rental homes to cover my down payment. If that happens, my debt goes up a lot more, but my monthly expenses go way down.
It appears my monthly payment if I refi'd my down payment would be about $506/month.
If I did that, it decreases my monthly cash flow to $436.
Annually, that is $5232. My only cost, I think, would be closing costs and I used $10K as that.
That gives me a COC RIO of 52%.
However, I'm leveraged a lot and either my personal home would be at risk and/or my rental homes due to the home equity loan that would cover my down payment.
The current property has 5- 1 bedroom apts that are all currently rented. Most of these rents seem a bit below market value.
Most of the commercial spaces are rented and include a church, bakery, beauty shop and an office with one current vacant office. I'm not familiar with commercial rent, so I don't know if these rents are cheap, fair or expensive. I can find that out though.
Any help in analyzing these numbers is greatly appreciated by this RE newbie.
I don't know anything about the creative lending part and that should not be considered when figuring the value of the property.
Your other numbers seem accurate. I don't see property tax or insurance. You will l want to know what those are and account for them. Some places the property tax can be very high. I would not buy any investment property with a CAP of only 9%. You have to figure the going CAPs in your area and what you want to invest at. My average CAP is 20%. I will go as low as 15% if I see potential. When you add in insurance and taxes your likely to drop to 8%.... There is no chance I would make that investment. Perhaps fill in the missing numbers then find what the property is worth at 11% and offer that. Hopefully you can agree in a 10% range if your comfortable at that return,
Its worth you time to find out what they will actually rent for. That needs to be a fact not a rough idea.
@Gordon French , thank you for your reply.
I have decided not to get the property I wrote about. The seller is a friend of mine who is also an investor and realtor. I don't want to get in over my head in my early days of being a REI.
The seller did find out about a triplex in my area that the owner wants to sell. He is also an investor and doesn't want to list it.
My 2nd SFH I bought was found by my friend (seller) and I ended up getting a great buy on it. It also was never listed.
So, I really hope this triplex works out as well. I haven't yet been inside it, but I've seen the outside, have been told about it, it's currently rented and it appears to be a good investment for me. I've run the tentative numbers on the BP calculator and it has good cash flow and such.
Put it in excel. If you need help send me a message
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