Deal Analysis Review

5 Replies

Hello Bigger Pockets, Im practicing running the numbers to find deals and would love it if you guys could review this particular analysis. The analysis is based off using a private investor to fund the deal, pay the investor 10% of the cashflow over 2 years. After 2 years, refi and pay the investor their initial investment + 10%.

6 unit (all 1bd/1ba) Property - 3950 Sq Ft 

Price $ 190,000.00
Down Payment(%) 20.00%
Down Payment($) $ 38,000.00
Closing Cost $ 9,500.00 5.0%
Estimated Rehab $ 5,000.00
Total Invested $ 52,500.00
Principal $ 152,000.00
Int Rate(%) 4.50%
Loan Term (Years) 30
Mortgage $770.16 $ 9,241.94
70% Rule $ 278,571.43
Rent ($) $ 3,300.00 $ 39,600.00
TOTAL $ 3,300.00 $ 39,600.00
Estimated Expenses
Expense Monthly Annual
Vacancy (5%) $ 165.00 $ 1,980.00
Prop Manager (10%) Self Manage Self Manage
Utilities (100/mo) Tenant Pays Tenant Pays
Prop Tax (3%) $ 475.00 $ 5,700.00
Insurance (100/mo) $ 120.00 $ 1,440.00
Repair/Maint/CapEx (15%) $ 400.00 $ 4,800.00
Landscape (60/mo) $ 60.00 $ 720.00
TOTAL $ 1,220.00 $ 14,640.00
Cash Flow
Tot. Cash Flow $ 1,309.84 $ 15,718.06
Tot. Cash-On-Cash Return 29.9%
Investor Cash Flow $ 130.98 $ 1,571.81
2 Yr. Investor Profit $ 10,550.75
2 Yr. Investor CoC Return 20.1%
2 Yr. Profit (if in Savings acct) $ 105.00

Hi Trent! Looks like you are doing a pretty thorough analysis. That's great because it allows you to analyze well. A few things that I see: The rehab budget for a 6 unit seems very small. Will you be doing the work yourself? What delayed maintenance do you need to account for? Are you getting an inspection? Are your property taxes estimates? I would give yourself a cushion if and when there is a reassessment. Same for insurance. I have a 2 unit in Michigan and pay $96/mo, so a 6 unit at $120 seems a little low. Make sure you check the coverage for purchase coverage vs replacement coverage. Landscaping seems low as well, don't forget snow removal given your location. 

I look forward to other responses. I'm getting better at analysis, but I know there's so much to learn to evaluate a good deal.

@Alicia Marks All the expenses are estimates based off information that I've been reading, but I would love to hear your thoughts on getting the actual/more realistic numbers. 

Will you be doing the work yourself? - No, however I do not plan to act on properties that would require much more than 10K to rehab/update.

What delayed maintenance do you need to account for? - Idk, I figured I would find this info out during the inspection if an offer was accepted. But once again I would love to hear how you go about this when you are analyzing properties.

Are your property taxes estimates? I would give yourself a cushion if and when there is a reassessment. - The taxes are estimates but from what I was able to find the actual taxes are 5200, so 5700 did give me that cushion. 

Same for insurance. I have a 2 unit in Michigan and pay $96/mo, so a 6 unit at $120 seems a little low. - What information about myself and the property would I need to get a quote so that this can be more accurate?

Thank you for you feedback

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Your estimates will improve the more you practice. When you walk a property, you'll be able to more easily estimate the work or additional items that you may not have accounted for previously. As for the $10k rehab, I would say that number is pretty low to expect, especially on multiunits. While you may not require a full rehab, even a make ready of a vacant unit can be $1000-2000 in painting and small repairs. You would likely need to find turnkey or near turnkey properties which will lower your profit margins and COC return in general. Even the little things can quickly add up on a property, especially a multifamily.

It's great for you to get an inspection, both for knowledge and negotiation, but you will want to have a decent understanding of how to read a seller's disclosure as well as things to look for when walking a property to know if an offer should be made at all. Sometimes you can pay a contractor a walkthrough fee before making an offer that will give you an idea of possible repairs. Paying $100 to save you six figured worth of mistakes is well worth it. 

It's great that you are accounting for a cushion for taxes a well as a sinking fund for major repairs. Being prepared makes what could be an emergency more of an annoyance instead. 

For insurance, I use NREIG, which I know does Michigan properties. They are policies for landlords. You'd need the address, unit age, additional buildings (garage, pool house, carports, etc), and whether the unit is occupied or not. You also generally need to know about fire prevention in the building such as firewalls, sprinkler systems, or whether each unit has a fire extinguisher. You'll also need to decide if you want full replacement cost (complete rebuild if the building is destroyed or purchase price replacement cost).

Keep it up!

From the numbers it appears this is a Class C property. If so:

1) 5% vacancy is too low. It should cover nonpayment & eviction costs also, which you will have with Class C tenants.

2) Class C will also have higher RentReady turnover costs

3) If this is in Detroit, what about Certificate of Complianec repairs?

@Trent Hicks , I agree with @Alicia Marks .  She has a number of good recommendations.  I also recommend you hire an inspector to give you an assessment before you negotiate a final deal.  Try to get one who will explain what he is looking for to you as he inspects the property.  Then, whether or not you get the deal, use the estimate report for this and future properties to learn how to estimate repairs and rehabs yourself.  

Good luck to you!  It looks like you are on the right track.