Help Analyze Deal Pittsburgh PA Greenfield Area

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Help Analyze Deal Pittsburgh PA Greenfield Area

Garret Coffman
Member since 2020 · 6 posts · 0 votes

Hello,

First time posting here looking to buy my first deal soon.

https://www.zillow.com/homedetails/525-Farnsworth-St-Pittsburgh-PA-15207/11544694_zpid/ <--- Not planning on buying just verifying I get this.

I'm using the four quadrant method to figure out the cash flow on the property.

So 20% down on this property would be 77,800 which would leave me with 311,000 in principal, good so far. Now each unit I could rent out for 1300 a month giving me an income of 3900. Now for the expenses part I was taught that you should estimate that expenses will take up 40 PERCENT of your income which is 1560. 

Now if this is all correct I can't figure out the debt. This is calculated by taking interest rate multiplied by reamining principal of 311,200 correct? If so, what does that number mean is it  mortgage on top of  expenses? I know once you figure debt and expenses you just subtract it from the income.

So, if interest rate of this property was 6 percent (theoretical I can't find it) than the remaining debt would be 1556 a month? Giving an monthly cash flow of 784 making this a moderate deal? Now with that how do I calculate ROI?

I know I could just use biggerpockets calculator but whenever you get into 8+ units it becomes inadequate entering all of the units. 

Last comment would you buy this deal if your in the Pittsburgh area based on location and crunching the numbers?

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  • Michael Tyler
    Rental Property Investor · CA · Member since 2019 · 65 posts · 53 votes
    6y

    The ballparking of 40% for expenses thing is too broad. Figure out exact amounts for as many parameters as you can. Figure out what your comfort level is for contingency funds, i.e. CapEx, maintenance, vacancy. People often apportion 10% for CapEx/repairs, and your management company (if you have one) would be able to tell you average vacancy rates. 3br in Greenfield is probably not high vacancy, so I would estimate 7% (but who knows).

    I run my own calculator. This is what I see:

    - Debt Service @6% estimated rate on $311k = $1865

    - Property tax (based on Zillow’s records and I round up) = $400 per month (PS - If you get spot reassessed by the county based on your purchase price, this amount might raise to $500-600.)

    - Insurance (again just guessing, get a quote): $150

    - Management Fee @10% average = $390

    These are your fixed expenses. Adjust as you like (for instance if you self-manage). Subtract from $3900 total rent leaves $1095 of cashflow.

    Personally, I separate CapEx/repairs/vacancy from cashflow, because these are not fixed expenses but rather a savings goal each month in preparation for irregular costs. CapEx/Repairs @10% and Vacancy @7% = $663. Leaving $432 take-home.

    In reality you’ll need all of that cashflow to fund the freshening of those dated kitchens if you want strong rent with low vacancy. And looks like one unit is in need of total cosmetic updating. Your agent should be able to tell you whether the asking price is below market rent, to compensate for the cosmetic warts. If the price is top of market I would ask for concessions. But if there are multiple bids then you’ll have to bid up and eat the cost of renovations. If you can’t, don’t buy the place. That would be what makes the decision for me - how fair is the asking price and can I afford the reno costs. Cashflow is fine (assuming rents/vacancies don’t get hit hard by the virus).

    Greenfield is a great spot. Go watch Dean Bog’s “Neighborhoods of Pittsburgh” YouTube episode on it.

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  • Marc Steinberg
    Member since 2019 · 6 posts · 2 votes
    6y

    I agree with what Michael said. First of all I would wait a bit to even put in a bid. You can't even go in to inspect the house while the Covid19 is around. Properties will sit around a bit longer driving the prices down. This is a time for disciplined investing. There will be many great deals out there in the coming months. For it to be a great deal this should be bought in the low 300's

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  • William Senneway
    Member since 2019 · 2 posts · 0 votes
    6y

    Garret, you are missing the principal payment on the debt. You don't just pay the interest every month - unless you specifically opt for an interest only loan, but then you are missing the equity buildup which is a valuable source of return on your investment.

    Michael gave you the monthly payment on a 30 year loan. Some investors prefer a faster payoff of 15 years - these often come with a slightly lower interest rate too.

    The monthly mortgage payment on $311,200 at 6% for 15 years comes out to: $2626.08. Amortization-calc.com is a very handy website for that.

    I do agree that you should get as exact as you can with your expense estimates. A couple phone calls and web lookups will get you pretty close. Brandon Turner does some regular webinars on here that do a great job of explaining the whole process of analysis.

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