Real Estate Agent · El Dorado Hills, CA · Member since 2016 · 37 posts · 12 votes
I'm not the listing agent on this property, I'm just curious to see how others determine their numbers. This popped up on the MLS today and I'm interested to how the BP community would analyze this.
3bd/2ba, $178,100, 1314 sq ft, built 1952, taxes ~$2k, no HOA, bank owned.
How are you assuming rent?
CapEx?
Being in California do you ever factor in appreciation on your calculations if all the other numbers look good?
Based on the location and size, I'd estimate the rents would probably be around $1,400 for a safe bet. Depending on whether or not you update it, you might be able to get several hundred more per month. But you'd have to figure those repair costs into your acquisition numbers.
CapEx would be determined by completing the routine inspections on the property so you know what the current status is on major ticket items. Most important two would be the roof and the AC unit since those are the most expensive. Then it really depends on who's doing your repairs. Are you hiring out? Doing them yourself? Or hiring a family friend for a discount? Everyone's expenses will be different.
I probably wouldn't figure appreciation into my calculations unless I was buying at the bottom of market. But if you plan on selling in a few years, you could probably calculate 5% appreciation per year for the next year or two. But we'll really have to see how high interest rates go next year.
Remember, "Income is King, and Cash Flow is the Holy Grail." The most important thing about this property is that you see a monthly return and don't go negative. If you put 25% down on list price at 4.5% interest you're looking at roughly $1,051.94 per month PITI, so you'd probably clear +$350 per month at $1,400 rented. That's probably more than enough cash flow to offset any vacancy or capex issues you might encounter over the course of holding the property.
Based on the location and size, I'd estimate the rents would probably be around $1,400 for a safe bet. Depending on whether or not you update it, you might be able to get several hundred more per month. But you'd have to figure those repair costs into your acquisition numbers.
CapEx would be determined by completing the routine inspections on the property so you know what the current status is on major ticket items. Most important two would be the roof and the AC unit since those are the most expensive. Then it really depends on who's doing your repairs. Are you hiring out? Doing them yourself? Or hiring a family friend for a discount? Everyone's expenses will be different.
I probably wouldn't figure appreciation into my calculations unless I was buying at the bottom of market. But if you plan on selling in a few years, you could probably calculate 5% appreciation per year for the next year or two. But we'll really have to see how high interest rates go next year.
Remember, "Income is King, and Cash Flow is the Holy Grail." The most important thing about this property is that you see a monthly return and don't go negative. If you put 25% down on list price at 4.5% interest you're looking at roughly $1,051.94 per month PITI, so you'd probably clear +$350 per month at $1,400 rented. That's probably more than enough cash flow to offset any vacancy or capex issues you might encounter over the course of holding the property.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
you state as given
"3bd/2ba, $178,100, 1314 sq ft, built 1952, taxes ~$2k, no HOA, bank owned"
Using an arbitrary GRM of 10, ignoring the neighborhood FMR, the rents ought to be about 178.1k / 10 = 17.8k/yr or 1,483/mo - - in the ballpark w/Wess.
Depreciation is a paper-acnt number and not generally within the PnL - - so NO, I don't use it in evaluations - - neither do I try to guess property appreciations or increases in rents year-over-year - - if it's not good day-1, it will evolve into another life form.
Two conditions you WILL need to account for: Vacancy ~8-12 % and (Reserves/CapEx) ~10%
Most use the 50% rule for expenses (which is all inclusive), but I'm tracking in the 30% range myself.
Investor · Sacramento, CA · Member since 2012 · 289 posts · 151 votes
9y
The numbers above look about right. You definitely don't want to consider appreciation when calculating if you can afford to keep the property, and it looks like cash flow shouldn't be an issue in the short term. In the long term, maintenance might eat up a good chunk of the cash flow. So the question is, where will you make money?
You only keep it for a couple of years, and sell before maintenance becomes an issue. ~$200/month for five years = $12k in cash, which will be approximately the agent fees when selling. If it hasn't appreciated, you haven't made any money.
Hold for the long term, and maintenance eats up cash: roof, AC, appliances, kitchen. If it hasn't appreciated, you haven't made much money, other than your principle payments. That is one way of doing it, but it's a slow way.
So even though you don't want to consider appreciation when calculating the holding costs, you'll want a conservative estimate to see if you'll make any money. This property isn't investment grade at 0% appreciation. At 3% average annual appreciation though, it brings in approximately $500/month extra.