[Calc Review] Help me analyze this deal

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This might be worth digging further into, @Michael Chilton . The biggest question is why do you think you'll be able to create $100k of value with only $5k of renovation? What you pay is, by definition, what the property is worth.

I'm assuming this is SFR, so you don't pay any utilities, lawn care, or snow removal. A few things to consider in your analysis.

  • Vacancy might be a bit low. I usually figure 8%, but that's very localized.
  • Repairs and CapEx are probably fine, but they may tick up closer to 15% combined as the years go on.
  • 5% management is probably unreasonable. You should figure 10-12%. 
  • Why a 20 year loan at 5%? Even with commercial mortgages, I'm seeing low to mid 4s. I bet you can find a better rate and longer term, if you want it.

@Jaysen Medhurst

Thanks for the reply. This is for a commercial/multi fam property. The value add is in additional rent. They’re currently bringing in $1100 from two upstairs apartments, with a vacant main floor for retail/ office that they expect to rent for $1100. I will rent the retail space for $1300, and the office behind it for $500. Management fee is only for the top units, that’s why it is 5%. As for the loan rate, I don’t know if I could do better rate for mixed use. You think so?

Okay, @Michael Chilton , that's helpful. Will the commercial spaces be NNN? Otherwise, I don't see why you won't have management.

You should be budgeting something for water/sewer, snow removal, lawn care(?). Is there house electric for hallway or exterior lights? What about trash? Most municipalities don't provide trash service to mixed-use properties.

What's your beginning and ending NOI? What Cap Rates are you seeing for similar properties in your area?

I do think you can get a better rate. I'd start calling every local bank and credit union and see what they're offering.

@Jaysen Medhurst

Sorry- I wrote a summary I thought would be posted with the original post. They will be NN, and the retail tenant will manage the property. No lawn, just a small sidewalk out the front and back doors that the commercial tenants will be responsible for. There may be house electric for the second floor hallway. No municipal garbage in this town. Will be on tenants to arrange. This is a thriving, but small town of 8500 in the Midwest. Closest "city" is under 100k people and an hour and a half drive. Realtor told me there's not a standard cap rate. I don't know what to think of that.

You want to know what their NOI is and mine will be? They have a vacant ground floor right now, so it's not good.

Okay, @Michael Chilton . To try and poke some holes:

  1. Why hasn't the current owner been able to rent the commercial spaces and why do you think you'll have better luck?
  2. Why do you think that the retail tenant (who doesn't even exit yet) will manage the commercial parts of the property? I've never heard of this and there's a lot of risk handing over that responsibility to a business owner with no expertise. This sounds like a major flaw in your plan.
  3. "Tenants to arrange garbage." Commercial-maybe, residential-very unlikely. I don't know your market, but I've never heard of anything like this before.
  4. Figure out what the house electric and water/sewer are going to be.
  5. If you don't know the cap rate, what are you basing the appreciation on? When you're calling around to local lenders looking for a better rate, ask what cap rates they're seeing in your area.

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