First Deal Analysis - 35% CoC Return?!?!? Where did I go wrong?

Question

First time posting so please forgive me if this is in the wrong place.

I have been analyzing some deals and wanted to have some of the more experienced folks look over my numbers to confirm my analysis. There is an 8-Unit Property listed for $295,000 in the Houston Area. In the listing the seller claims 71,880/year in gross rent and that it is currently leased out.

Rent Fee:

$5,990.00

Principle & Interest:

$1,127.00

Monthly Taxes:

$658.00

Monthly Insurance:

$344.00

Maintenance:

$958.40

~16% Gross Rent

Vacancy:

$479.20

= ~8% of Rent

Property Managment:

$0.00

Capital Expense

$299.50

= ~5% Gross Rent

Utilities:

$0.00

Exterior Care

$100.00

Lawn Care

Total Monthly Cash Flow:

$2,023.90

Estimated Annual Cash Flow

$24,286.80

Loan Amount

$295,000.00

Down Payment

$59,000.00

Closing Cost (3% of Loan)

$7,080.00

Seller Concessions

$0.00

Repair Costs

$1,350.00

Utility & Other Costs during Vacancy

$800.00

Total Cash Invested:

$68,230.00

Cash on Cash Return:

35.60%

With a CoC Return so high I am skeptical about my numbers. This investment seems like a no-brainier. Please let me know if you see any errors in my analysis.

Deshawn Lewis · Answer

@Chris Ganz

Well, you need to account for PM, even if you are going to manage the property at least put it in your numbers so you will have an idea how it would look if you don't want to PM the property anymore. Also, I think you will have some utility expenses as well, Even if its as small as a hallway light or storage room light etc.. you have no cap ex expense as well, thats the biggest thing that you are missing. just for example CapEx will cover big expense over time like a roof, ac unit, etc.. you NEED to budget these things before it happens..other than that it looks good

Ryan Murdock · Answer

@Chris Ganz

I'd verify that the income really is at the stated levels. Often what's provided by the seller and what is really happening are two different things. Excessive vacancy and/or deadbeat tenants combined with significant initial repair/CapEx costs can really set you back. Your preliminary projections may be attainable but you could be in a world of hurt if it takes you 3 years to get there.

Tom Cooper · Answer

I cant address whether your deal is good but I think your loan payment is way low!  Is your loan amount is $295,000, your stated payment of $1127, that comes out to around zero Percent interest on 20 year, 2% on 30 year!  Both unlikely!  May still be a deal, but need to revisit that calculation!

Jason Hirko · Answer

@Tom Cooper I think he put Loan Amount where he should have said Purchase Price... Loan amount should be about $235k

@Chris Ganz a 20% (or even 35%) CoC return isn't crazy. That is the power of leverage.

Collin Garbarino · Answer

You might want to check that the stated rent is actually what they've collected for a year. I recently saw a 4-plex in which the seller advertised full units at impressive rents. What the seller neglected to mention was that he'd given everyone a couple of months free rent as an incentive to sign the new leases, which means his yearly rents were lower than the number that he was giving.

Ben Volkman · Answer

@Chris Ganz Awesome deal, I saw it is already pending so I'm assuming you moved on it.  Best of luck!  That is definitely one of the better deals I have seen over the last 3 months in the 4-8 unit range!  Keep us posted on how it works out!

Alex J. · Answer

thats a good deal.  i am invested in houston myself thats a lot of doors for the money, if the condition of the place isnt horrific then its a good deal.

Cody L. · Answer

Cool.  Best of luck!  Let us know when you get it.  I've seen a lot of people get all fired up to buy RE then nothing happens and they fizzle out.  Please don't let that happen to you!

Chris Ganz · Answer

@Brent Coombs @Deshawn Lewis Revised numbers:

Rent Fee:

$5,990.00

Principle & Interest:

$1,127.00

Monthly Taxes:

$658.00

Monthly Insurance:

$344.00

Maintenance:

$958.40

Vacancy:

$479.20

Property Managment:

$800.00

Capital Expenditures

$299.50

Utilities:

$100.00

Exterior Care

$100.00

Total Monthly Cash Flow:

$1,123.90

Estimated Annual Cash Flow

$13,486.80

Loan Ammount

$295,000.00

Down Payment

$59,000.00

Closing Cost (3% of Loan)

$7,080.00

Seller Concessions

$0.00

Repair Costs

$1,350.00

Utility & Other Costs during Vacancy

$800.00

Total Cash Invested:

$68,230.00

Cash on Cash Return:

19.77%

With the additional 800/mo taken out for property management and 100 for utilities the CoC return seems much more appropriate. My intention was to self manage but maybe if the economics are this good, it would be worth having a more experienced PM.

As for the loan, I just used an online loan calculator. :/ Maybe not the most exact... What would be a more accurate estimate in your experience? I have 780 credit with plenty of income to qualify personally for a loan of this size.

First Deal Analysis - 35% CoC Return?!?!? Where did I go wrong?

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