PLEASE HELP ME ANALYZE A DEAL

11 Replies

I have come across a property - new construction, 4 beds, 2.5 baths $285K. With 25% down, 3.5% interest rate, 30 year term - my monthly mortgage including taxes ($500) insurance ($60) and HOA ($35) is around $1,500. Property rents for $1,900. It's a single family, all four bedrooms are on 2nd level. I would make $300-400 since I'll be managing the property.

Cons: It’s a developing area, still feels like in middle of nowhere, and schools are not good.

Pros: 20 minutes to downtown, cash flows, new construction so all the warranty and no repairs or expenditures for a long time, and potential for development.

Please let me know your thoughts, I feel this seems like a good investment.

@Darshil Parikh So what numbers are you using for your hidden costs:vacancy, repairs, capex. Looks like none. Most single family homes I use 23% for the 3 or $437. Looks like you can lose between $37 to $137 per month. Lets look at 1 item in a capex budget. Floors. Life span of 10 years. assume 2000 sf of flooring. My area it is $6 sf to replace with a moderate LVP. Carpet has a lifespan of 5 years. $12000/10 year life span/12 months in a year=$120 per month in one item. Still need to budget for roof 25 year life span, appliances and hot water heater 12 years, hvac 20 years, bath and kitchen remodel 20 year life span.

@Tim Herman I am not using anything for hidden costs for repairs and capex - it is a new construction, comes with 1-2-10 warranty, so I am not expecting to spend much on repairs for next 3-4 years, hopefully.  Vacancy - not considered, if we do one month a  year, then it wipes out my cash flow.  It generally rents quickly, and I will list it for lease 30 days before closing and will be talking to agents around so its rented right away.  

@Darshil Parikh It sounds like a nice property but I can tell you it won't cash-flow. There are quite a few expenses that you left out (vacancy, maintenance, CapEx, managment). What about the $12K for closing costs? After running the numbers in my spreadsheet you cash-flow $36 per month.

As a rule of thumb it smart to chase the 1% rule... $285K, rents for $2800 per month. This deal doesn't even come close. From an investment stand point you'll have roughly $82,650 into the property, assume no repairs. Obviously that's a lot of coin unless you bank on appreciation or have another strategy.   

@Jaron Walling You are right. It will not cash flow if I were to consider vacancy, etc.  I am managing the property - I live 20 minutes from there.  I am banking on appreciation, it is in Austin, TX.  Pass?

@Darshil Parikh Like @Jaron Walling said this won't cash flow. if this is a buy and hold you have to take the soft cost in account. You wanted help analysing the deal. Two people gave you advise. You do what you want. How about this scenario. Have the perfect tenants pay rent on time. Husband loses job halfway through your lease. You are now going to have to evict the tenant. Is that coming out of that $400 that now isn't coming in.

@Darshil Parikh Austin is great and I love that city! Reminds me of Denver for some reason and it's crazy expensive now. The appreciation has been high, how high can the markets go? It's still a gamble. I'm not a gambling man. 

If you're looking for buy and hold properties it's a solid pass for me. Good luck man!

@Darshil Parikh

Hello Darshil,

As someone who specialised in new constructions (although 100% luxury apartments), hindsight, they are not the best investments because you’re pay top dollar for the shiniest, newest and flashiest toy at a premium.

Other properties in the area welcome new construction as it brings up their property value.

Another rule is that you never want to be the nicest house in the average neighbourhood.

Like many said, I would pass on this as well.

@Darshil Parikh

Builders warranty doesn’t cover damage by tenants. And I sure as heck wouldn’t be locking myself into $285k house to possibly cashflow $300. That’s a pass for me, not even a second look.

@Demarcus Crump I understand every investor has a strategy. And bigger pockets it's all about cash flow and 1% rule. However, in the market I am in, I am betting on appreciation and I also look at the principal pay down annually that is covered by my tenant. Someone reminded me $4,500 principal pay down that close to 7% ROI even if I break even at 1 month vacancy. Rent by room would deliver almost $2,400 per month in rent and if one tenant is out, I'd still get 3 rents. Single family with multiple family stream of income - could require lot of time but if the tenant is screened right, your work becomes easier.