Do these numbers look good?

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*This link comes directly from our calculators,                  based on information input by the member who posted.

This report shows what I'd like to offer for a purchase price plus the rental income based on the median rent for the market from Rentometer. Are there any expenses I'm missing? What are your thoughts?

Edward Liu · Answer

I suggest you double check the after market value.  It is very rare for find a deal where you complete $9k of repair ONLY and immediately value of property increase by over $200k.  Why doesn't seller do such and sell it at much higher cost?

If this is indeed the case, then do the deal, spend the $9k repair, and immediately sell.  With $105k cash put in, profit of $200k in less than 3 months, why not?

No need to hold long term.

Jacob Sampson · Answer

I second what @Edward Liu and @Zach Jones said.  Both items they pointed out are what I was thinking.

I would be surprised if $9k would actually create $200k in value.  Additionally, You definitely want a higher COC.  Your margins are slim.

Zach Jones · Answer

Hey Christa, thanks for sharing!

Quick feedback: I think a good rule of thumb is to always shoot for at least 12% for the Cash on Cash ROI.

Best of luck on getting a deal done!

Eric Heinen · Answer

Cash on Cash should be double the current figure IMO...7% is the average return the stock market will give you plus no additional headaches of a rehab and deadbeat tenants.

Christa S Rickard · Answer

Thanks @Jacob Sampson. That's good advice. I'm also going to lower my offer a bit. We'll see what he says.

Jacob Sampson · Answer

@Christa S Rickard - I just purchased 2 x 4plexes that generates $5k in gross income.  I paid $290k and will need to do about $10k is deferred maint.  All that is to say that at a high level, and based on the neighborhood info you have provided, it seems to be a reasonable deal.

The only advice I would give is even the best deals can go bad if under capitalized.  Just make sure you have plenty of excess cash.  It will likely take more cash and a longer time than you expect.

Christa S Rickard · Answer

Thanks for the feedback, everyone.

@Edward Liu and @Jacob Sampson, regarding the $200k increase so quickly, I was trying to show that increase after 5 years (I've never used the Bigger Pockets tool before so may have done something wrong).

The property is currently self-managed and it appears poorly at that. Current expenses are only 30% of Gross Income and half of the tenants show late payments on the rent roll. Most of them also have at least 1 in the "late notice" column with several showing 5 late notices. I have yet to purchase my first property, but to my novice eyes, it looks like the current owner is letting tenants slide and not bothering to do anything about it. The rents are also well under market according to Rentometer (Avg rents are $795 and Median is $750). The current rents range from $500-$695, even though all units are 2 bed/1 bath.

I think this could be a good neighborhood for me to invest. This particular area shows 3 consecutive years of pop growth, 3 consecutive years of HH income increases, and 3 consecutive years of unemployment decreases (currently at 2.5%). Neighborhood Scout has it listed as a "Blue Chip" neighborhood, which is its best ranking. So I'm feeling pretty safe with the area.

I am currently going based on the images I've seen in the portfolio, but the units look in good condition. Carpeting is a bit dirty/worn and would need to be replaced, preferably with LVP, but otherwise they look comparable to other units in the area.

My thought was to purchase the property and, depending on the lease agreements, get all tenants up-to-date with rent or get them evicted and replaced with better tenants. I would have a property management company handle this part. If I can upgrade the flooring and some fresh paint, I should be able to rent them for the current median rent of $750, which is the reason for the huge jump in value. If I don't evict any tenants, and they make payments on time, then I'll have to increase rents gradually each year, which will reduce the immediate value.

So am I being overly optimistic in my thought process?

Do these numbers look good?

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