Good Evening BiggerPockets family! My name is Jonathan and I'm an aspiring real estate investor in good ole Memphis, Tennessee. I've been infatuated with analyzing rental deals for quite some time, but I figured it was time to throw together an analysis tonight to hopefully gain some insights and constructive feedback from some of the investor gurus out there! All feedback is greatly appreciated. 

I'm looking at a duplex located in Memphis, TN. Seller is asking $189,000 for the property, although I'd be shocked if they were able to get that much for it. Currently, one side is rented at $925/mo. 

The strategy for this property would be to take an FHA loan for the home at 3.5% down, with an assumed interest rate of 5.04% (average FHA interest rate for Feb - still need to speak to a local lender).

Annual property taxes - I pulled off of the listing. $1,687 for county and $1,312 for city for a combined $2,999/year, amortized at $249.92 a month. Ouch.

PMI I estimated to be 0.05% of the total loan amount $189,000 - divided by 12 -- $78.75 per month.

For property insurance - I did a rough estimate of $189,000/$1,000 x $3.50 and amortized monthly.

Vacancy = 5%, Repairs =5%, Capex = 8%, and property management =10% (even though I'd manage it while I lived there).

Clearly, the numbers don't look very great at the $189,000 ask (see below)

So, we've gotten a negative monthly cash flow of $693.35 to live there. What's it look like when I move out and acquire a tenant for the other side?

The only assumptions I'll change for this one is doubling the rent.

Still losing $27.35 a month. At least at that asking price.

Let's lower the asking price to make the numbers "make sense". My target CoCROI is 10-15% at least.

Changing the ask price to $170,000 means this property can pull a 15.94% CoCROI. However, for a whopping $79.03 in free cash flow -- I don't think I'll be taking the leap.

What I'd really like to know is this -- What do you all think of my numbers? Is there anything I could add or tweak about the model? Any criticism is welcome.

Thanks!

Jonathan

Everyone runs their figures differently but the way you run them will make almost every deal look terrible on paper. Vacancy, maintenance and Capex will do it every time. The big reason this place does not look good bc you are only putting down 3.5% as opposed to say 20-25%.

Good luck 

Hi Curt! Thank you for the feedback. I agree that the allowances for those three are definitely a killer. My goal with the 3.5% down is to take advantage of an FHA loan since I'd be living in one side of the property. However, I'd like to keep my "rent payment" to myself relatively low. I feel that ~$700 is still far too much, even for a 3.5% down deal. Perhaps I'd have better luck looking at older properties that need more renovations?