Looking for second set of eyes on next rental property

Cleveland, Ohio
General Landlording & Rental Properties
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Looking for second set of eyes on next rental property

Nick RothPro Member
Member since 2022 · 16 posts · 13 votes

Hey All!

Attached are screen shots of my analysis for my next investment property, long term hold.

Looking to get another set of eyes and insight from more experienced investors to see if I'm missing anything or if this is something worth pursuing. 

Looking forward to this!

Nick

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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
2y

@Nick Roth Until very recently when I bought a terribly mismanaged and extremely underperforming property for cash with the plan of BRRRR after stabilizing it, my portfolio averaged $179/door/month. I know that's not a great return but I was paying down mortgages to build equity and had nice levels of reserves in my accounts.

I think now with the new mortgage-less property that’s an 8 unit my new average is at least $379/door/month.

There’s nothing wrong with a property that ONLY cash flows $200 per month. Rome wasn’t built in a day.

Get a thorough home inspection and make sure you're saving for your repairs and maintenance and your CapEx every month.

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  • Vadim F.
    Investor · Member since 2020 · 337 posts · 213 votes
    2y
    Quote from @Nick Roth:

    Hey All!

    Attached are screen shots of my analysis for my next investment property, long term hold.

    Looking to get another set of eyes and insight from more experienced investors to see if I'm missing anything or if this is something worth pursuing. 

    Looking forward to this!

    Nick


    I would add another $100mo expense for water and sewer, and that would bring down your cash flow to just over $200 and your CoC will be below 6%. Even if you are cash flow positive, it can all wiped out completely if a major capex issue repair/replacement is needed. You can get an equivalent return by putting the down payment into a CD account.

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  • Nick RothPro Member
    OP
    Member since 2022 · 16 posts · 13 votes
    2y

    It's definitely not a home run deal but and also considering other benefits as well like tax benefits, etc. I plan on having tenants pay for water but can agree the cashflow is slim for now. Thanks for the response Vadim!

    1Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    2y

    @Nick Roth Until very recently when I bought a terribly mismanaged and extremely underperforming property for cash with the plan of BRRRR after stabilizing it, my portfolio averaged $179/door/month. I know that's not a great return but I was paying down mortgages to build equity and had nice levels of reserves in my accounts.

    I think now with the new mortgage-less property that’s an 8 unit my new average is at least $379/door/month.

    There’s nothing wrong with a property that ONLY cash flows $200 per month. Rome wasn’t built in a day.

    Get a thorough home inspection and make sure you're saving for your repairs and maintenance and your CapEx every month.

    1Reply
  • Nick RothPro Member
    OP
    Member since 2022 · 16 posts · 13 votes
    2y

    Thanks Alecia! 

    I truly believe this will be a great/stable home so I have faith this will ultimately be a good decision and investment when looking back at life.

    0Reply
  • Daniel Miller
    Rental Property Investor · Akron, OH · Member since 2023 · 15 posts · 6 votes
    2y

    These are very conservative numbers, which is good. I think there are some things you can do to help shave some costs and increase profitability...

    1) Can you lower closing costs?  Did you consider taking a HE Loan on your personal residence and making this a "cash" deal.  You can likely get closing costs for that loan at less than $500 and a comparable interest rate, maybe even lower (if you have the equity + cash).

    2) It's good to plan/budget for all the expenses you have, but if this is going to be a refreshed home, repairs and maintenance will likely be far less than 5%. Do you need to budget 5% for maintenance and CapEx? If you're putting $15k into repairs, properly, you shouldn't have any CapEx...

    3) Vacancy - good to budget for, but can you get this rented before the repairs are complete so you have income from day 1?  Also, would you offer a $25/mo discount on rent if someone leased for 2 years vs. 1 year?

    4) Sale price - is this under contract? Can you get the $15k in repairs as a seller credit or discount? Anything you can do to lower your amount financed (which lowers required down payment to avoid PMI) helps increase cash flow.

    Again, conservative numbers are better than the opposite. However, owning an investment property isn't as passive as people think. With everything that goes into it, it's easier to make way more than $200 a month driving for Uber or picking up a bartending shift once a week. I know that's active income and not investing. All I'm saying is that $200 a month isn't a great ROI all things considered. Plus, 70% of your ARV is well below your total investment...I think your purchase price needs to come way down.

    For a property like this that rents well above the 1% rule, I'd be looking for closer to $500/mo in cashflow.

    1Reply
  • Nick RothPro Member
    OP
    Member since 2022 · 16 posts · 13 votes
    2y

    Thanks Dan! Yes I agree, I'd rather be conservative than the opposite. I honestly do plan on managing the property myself but as I become more experienced and do more networking I'd like to eventually hire a property manager, so I'm just cutting it down the middle at 5% compared to 10%. Ideally the property will also be renting for $2k within the next few years as well, I believe $1850 is currently on the lower half. 

    Thanks for the thoughts and response Dan! 

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