Running the Numbers

12 Replies

Hi y’all!! Newbie investor here 😬 I want to make sure I’m running my numbers correctly.

Hypothetical case:

Listing Price: $74,900

Down Payment: 25%= $18,975

Rent: $1400/month

Monthly Expenses: $700/month

So my ROI is:

cash flow = 1400-700= 700x12(for the year)= 8400

Investment= 18975

8400 divided by 18975 = .442 x 100 = 44.2%

Am I getting this correct? In a perfect world.. this would be a great investment right? Thank you in advance!!

@Xiomara Davila

I’m assuming expenses include mortgage, taxes, insurance, vacancy, maintenance, capex, etc.  There is no rehab to be conducted?  A mortgage of around 50K is difficult to get for many lenders. 

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@Xiomara Davila

Capex is for major improvements and the life span of large ticket items. Everything has an expiration date. Roof, furnace, a/c, etc. You can also calculate kitchen and bath renovation that would need to be done in 10 years. You might use 10% for an average number. If the roof only has 5 years left you would increase that number to cover the repair.

Rookie as well, but I would include closing costs such as inspection, appraisal, title fees, anything else you pay as the buyer in your state.  Regardless that would appear really solid!  Maybe search around for a few other sources to estimate rent, is that actually what they're getting or is that proforma after some type of repairs/rent increase?  NY has a cap on rental increase per year, right?  So, are there tenants paying less than that, when does their lease/s end, and can you even increase the rent to $1,400 with them still there or do you need to wait?

With that said, if you're confident it'll rent for $1,400 once you put new tenants in then biting that bullet for a great deal most likely is worthwhile to you in the end.

@Nick Cafaro it’s a duplex, $1400 would be the combined income. It’s also the lower end of the rents. Other places in the area with similar sizes are renting for $775-$850. I just used $700 to do the numbers. I will definitely include more numbers though. Thank you!!

Your expense numbers are too low for a duplex.  At that rent price for a duplex, the 50% rule is likely fairly accurate to slightly aggressive, but does include PM.

The calculations are only as accurate as the numbers used in the calculations.  In this case the calculations appear fine, but the numbers used in those calculations are too aggressive.

Cap ex/maintenance should not be a percentage of rent as it is not primarily a function of the rent but the features (bathrooms, detached vs attached, root type, foundation type, yard, hardscape, etc.).  In this case there are two kitchens.  My cap ex/maintenance per kitchen is $50/month on small rental size kitchens.  In my pro forma, the kitchens maintenance/cap ex alone would be $100/month.

50% rule: $1.4k - $700 (expenses) - $165 (P&I, 30 year 3.25%) = $535.  $535/2 = $267/unit not including mortgage paydown, tax advantages, etc.  $535 * 12 = $6420.

$6420/$18725 (note there will be closing costs, maybe points) = 34%.

If you want to be more conservative, run the numbers at 55% expense ratio

Question: is it worth it to you to have 2 units at $267/month per unit cash flow (I would pass if this was expected to be the primary source of long term return)?  What is the appreciation (property and rent) outlook?

I suspect a lot of new investors would be quite happy with this investment if these accurately reflect the reality.  

Good luck

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