New investor here looking to buy my first Quad with a VA loan. The asking price is 550k and the rent is $1100 a month per unit. It doesn't meet the 1% rule. What all should I do to make sure I'm making the right decision? Or can someone point me in the direction of calculating ROI?
Investor · NC/SC · Member since 2023 · 149 posts · 77 votes
2y
Hey Antoinette, Welcome to BP and the world of Real Estate Investing!
Bigger Pockets has a few calculators you can plug in relevant info into to calculate ROI, and other metrics of a property you're analyzing.
The right decision or good deal are not always universal. You have to decide, are the returns the investment generates satisfactory to you and do they align with you investment goals?
A great book that can help you with calculating KPIs and Metrics on rental properties
Investor · NC/SC · Member since 2023 · 149 posts · 77 votes
2y
Hey Antoinette, Welcome to BP and the world of Real Estate Investing!
Bigger Pockets has a few calculators you can plug in relevant info into to calculate ROI, and other metrics of a property you're analyzing.
The right decision or good deal are not always universal. You have to decide, are the returns the investment generates satisfactory to you and do they align with you investment goals?
A great book that can help you with calculating KPIs and Metrics on rental properties
Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
2y
I'd suggest looking up current rental listings for units that are as similar to yours as possible. Are they the same rents or higher? If there's room to increase rents you'll be very close. Even if you love the deal as presented it's wroth negotiating. The market is cooling right now.
Lender · United States · Member since 2020 · 1k+ posts · 499 votes
2y
Taxes and insurance matter as well, but at least based on the rents, it sounds like a good deal. This is assuming the property isn't in a war zone or needing rehab.
Investor · Miami, FL · Member since 2015 · 355 posts · 268 votes
2y
Income looks a little light to be able to cover mortgage payments, assuming you're maxing out leverage on the VA loan. If you have rental upside, it could work out. Lenders/appraisers will often be a good backstop to prevent getting into a bad deal.
Real Estate Broker · Albuquerque, NM · Member since 2015 · 281 posts · 232 votes
2y
Good deal? Bad Deal? That's awfully generic in terms of looking at investing.
As a VA deal, are you occupying the property?
Analys should assume all 4 units rent - even though unit 4 will be yours not collecting rent.
The other 3 units should subsidize the mortgage payments, taxes, insurance, repairs / maintenance, etc.
Is what you're left with less than you currently pay for housing expenses? If it is less, then this is a positive to consider.
Typically when advising new investors in these properties, I plan on 12-18 months with a break even reflection. Even if monthly cash flow is positive, you need to set aside for repairs, maintenance, turn over, etc. It will take about 2 years to start seeing a positive return on your monthly cash flow.
Typically, these properties, especially at zero down, are going to cut it close on monthly cash flow. Ideally, you're buying for a long term hold in which they do become more cash flow positive over time. Appreciation tends to do well on them over time as well as the Equity built from tenants paying the mortgage.
A good deal is one that ticks your boxes and you are good with according to your metrics.
@Antoinette Ford Hi Antoinette. Most deals aren't meeting the 1% deal currently. That being said the VA loan is one of the sweetest deals going right now.
The question becomes is the price at all negotiable, is there any room to make it a value add deal, upgrades, light renovations you can do, rent increases, landscaping you could do perhaps?
All of these things would help to increase the value.
If this property was in my market if there was some cash flow after expenses I would probably consider buying this property as a long term investment given how much appreciation we get.
If the market this property is in tends to get solid appreciation then that would be another factor to consider.
I’d analyze it on the BP Calculator and then make my decision.