Need help analyzing a rental property

21 Replies

Some background.

I am looking to purchase my first home, and investment property. We are looking at multifamily homes. Even though we are planning on living in one of the units, I want to treat this as if though we will rent both of them because eventually we will. I also want to include property management because even though I will manage this now, I may not in the future. Rental income is based of off what the Redfin page says they are currently getting.The numbers I am going to show you are for one that we were interested in, but after doing some math, it doesnt look so good. I am not really sure if I am estimating my expenses correctly. Any help would be great. Thanks.

Rental Property Analyzer
     
Asking Price: $389,000.00      
Address: 74-76 S Whipple, Lowell MA 01852
# of Units: 2      
Income    
Rental Income: $3,000.00      
Other Income:      
Total Monthly Income: $3,000.00      
     
Expenses    
Taxes: $326.00      
Insurance: $130.00      
Water/Sewer:      
Garbage:      
Electric:      
Gas:      
HOA Fees:      
Lawn/Snow:      
Vacancy: $150.00      
Repairs: $150.00      
CapEx: $360.00      
Prop. Mngmnt: $330.00      
Mortgage: $1,718.00      
PMI: $212.00      
Total Monthly Expenses: $3,376.00      
     
Cash Flow    
Monthly Income: $3,000.00      
Monthly Expenses: $3,376.00      
Monthly Cash Flow: -$376.00      
Total Annual Cash Flow: -$4,512.00      
     
Cash on Cash Return    
Down Payment: $50,000.00      
Closing Costs: $10,000.00      
Rehab Budget:      
Misc Other:      
Total Investment: $60,000.00      
     
Cash on Cash Return: -7.52%      

This would lose money, as you can see, but not only that, you haven't even included all the expenses.  

  • I see a driveway in the photo, and the snow is not going to remove itself.
  • There appears to be a backyard from the photo, and the grass won't mow itself either
  • You haven't included water/sewer - Lowell doesn't have wells in that area, I'm pretty sure
  • There may be common area electric for smoke detectors and outside lights, and if the basement is not part of a unit
  • Find out whether there are common areas to heat.

So if you want something that cash flows once you have moved out, this won't be it.

@Aaron Misiph  

1- You dont need 50k to buy this property, is you go the FHA route you can put down 14k and still win the property.

2- Can you make any repairs to increase the value of the property and increase the rent?

I honestly don't think this is a good deal because you are cutting it too close. I aim for 250$/per door cashflow after all expenses

@Redgy Saint-Germain

Hi Redgy, thanks for the reply.

1. If I were to do this, would that further decrease my cashflow?

2. I am not sure, the property was just recently updated so I am not sure how much forced equity I could get out of this.

I am no longer interested in this property, however, would you mind sharing what your estimated costs look like if you really only aim for 250$/door cashflow. Is there a specific type of property that you are investing in?

Snow - no idea what snow removal costs in Lowell, check craigslist

Grass - same thing

Water/sewer - find the water and sewer utility in Lowell and call them, they may give you historical for the year

Electric depends on how much common area there is - I don't have MA rentals, only NH

Don't buy this building

Yes.  MA is extremely tenant friendly.  Emphasis on extremely.  Don't take landlording advice from anyone except people who have MA rentals if you buy in MA.

NH is the Live Free or Die state, and laws are much better for landlords.  Plus, although people complain about NH property taxes, my tenants pay all of mine, except my primary residence.  And I have no income or sales tax.  In fact, I moved to NH to invest years ago.  

@Ann Bellamy

You just mean that you take the property taxes into account when determining rent right?

Would you mind taking a look at some numbers for one other property that I thought might actually be good? See the numbers below: I dont have numbers for the water/sewer, lawn/snow, or electric yet, but this should give a general idea. Should I also not factor PMI in to cash expenses since it is only temporary?

Rental Property Analyzer
     
Asking Price: $299,900.00      
Address: 12 Coachlace St Clinton, MA 01510
# of Units: 3      
Sq Ft 2920      
Price/ Sq Ft $102.71      
     
Income    
Rental Income: $3,215.00      
Other Income:      
Total Monthly Income: $3,215.00      
     
Expenses    
Taxes: $305.00      
Insurance: $100.00      
Water/Sewer: $0.00      
Garbage: $0.00      
Electric: $0.00      
Gas: $0.00      
HOA Fees: $0.00      
Lawn/Snow: $0.00      
Vacancy: $160.75      
Repairs: $160.75      
CapEx: $250.00      
Prop. Mngmnt: $353.65      
Mortgage: $1,263.00      
PMI: $156.00      
Total Monthly Expenses: $2,749.15      
     
Cash Flow    
Monthly Income: $3,215.00      
Monthly Expenses: $2,749.15      
Monthly Cash Flow: $465.85      
Total Annual Cash Flow: $5,590.20      
Cash Flow/Door $155.28      
     
Cash on Cash Return    
Down Payment: $50,000.00      
Closing Costs: $10,000.00      
Rehab Budget:      
Misc Other:      
Total Investment: $60,000.00      
     
Cash on Cash Return: 9.32%      

No, the market determines the rent.  I just don't buy something that doesn't cash flow.  

And yes you should take PMI into account, it's an expense, after all.

Without knowing your actual expenses such as water/sewer, there is  no way to give you an answer.  what if it is $250 a month?  Talk to MA landlords, not me.  They can give you a better idea.

It looks like you're using 5% for vacancy and repairs. Do you have statistical data or experience to back up the lower numbers? If not, I would use 10% to be safe.

I noticed the recent property you posted was clinton, ma. in comparison to lowell, ma of the original property. The character of clinton is different and likely a smaller rental market. Do you know Ma? If this is a relo before looking at deals get familiar with the options for areas. I relocated to Ma so my personal experience is know before you buy. Although I am not a landlord here I know area will impact vacancy too. and also say snow will never be $0...

@Colleen F.

I am from MA, and currently work in Marlborough. I know that the rental market in Clinton isnt as strong as Lowell, and that that will impact vacancy. However I am kind of at this point where my lease in the apartment I am renting in Lowell right now ends in September. The leases for this place in clinton end in August, so I will be able to move in with a month to spare. The tenants there have confirmed that they would like to stay if possible. What would you say is a good estimate for snow removal? While this may not generate the most cash flow, this is the best that I can currently find within my price range, with the time that I have. 

We are in Shrewsbury and it is $65 a plow for our driveway whixh is on the longer side,$ 40 i to salt and more if it is over 6 inches. it depends on what you have them do and what you have but eatimate 400-600/ season I might figure.  If you use the same plow and landscape guy you probably get the best deal.

Do your own property management and shave off those $353 you have especially if this is your first rental. You need to get your feet wet with the management side of things before so you can set your own expectations in the future. Just saved you $353 cash outflow monthly

Don't buy that house in Clinton. I've walked inside, if it's your first rental it's going to be overwhelming with the work needed to clean it up and get it respectable. It's way overpriced.

@Michael Totman

Hi Mike. Thanks for the response. When did you see the place in Clinton. What kind of work are we talking about here? I am not afraid to do work, I am a handy guy and can probably do a lot of stuff myself. I havent been able to get in yet, I have a scheduled showing for Thursday.

Thanks,

Aaron