Deal Analysis sanity check

6 Replies

Hi Florida BP'ers! I am a new investor who is very motivated to get my first buy and hold property. I'm getting frustrated because I can't find properties that meet my deal requirements. I have been using Brandon's investor analysis spreadsheet to analyze lots of deals that I find on CL (Craigslist), Redfin, Zillow, and from a couple of real estate agents. By the time I subtract expenses, I'm having trouble cashflowing anything above $50/mo. My target is $200. Because I'm inexperienced, I'm doubting my analysis. Can I get some validation from experienced investors?

I'm using rentometer and Zillow to project rent rate. 

I'm subtracting 40% of monthly rent for vacancy, maintenance, capex and property management 

I'm also subtracting mortgage, insurance and taxes. 

Insurance quotes here in FL are coming in around $200/month for a basic 3/1 1100sq/ft house. Seems expensive! Taxes is also expensive, around $170/mo for the same 3/1 house - I'm using the county property appraiser website for this. 

Given this information, does it sound like I'm doing anything incorrectly? Any advice? 

Look at Pasco county. Much better cash flow there. Your analysis is spot on. Make sure you factor in HOA, flood insurance and higher taxes if the seller has homesteaded for a long time. Ask me how I know!!! Steer clear of ultra cheap properties that may have sinkhole risk. Good luck!

If you are wanting to buy older properties, the insurance can be quite expensive. I try to buy everything 2000 and newer for that reason. Most of those tax bills for nice houses-1400-2200SF are about $1000 a month. As an example, I have a much older house, wood frame, built in the 80's, 1000SF, and they quoted me almost $1800 a year for insurance. Much smaller, lots less income, much lower value, and 80% more to insure!

Market Rent

Zillow and Rent-o-Meter are useful screening tools, but are not gospel. You should look at actual rental comps to determine market rent (and keep in mind rents are appreciating quickly, and you're looking at comps 6-12 months in arrears). Typical SFR rentals in St Pete are in the $1.00 to $1.25 per sq ft range and climbing.

Insurance Costs

Insurance is expensive (and you definitely want to avoid flood zones unless you're getting into high-end waterfront properties), but those rates do sound high...PM me and I'll be happy to refer you to an insurance agent who has helped many of my clients. Insurance costs are difficult to estimate without an actual quote from an agent, as there are many variables (both with the property and the policy) that impact the premium.

Taxes

Instead of using last year's taxes, one formula you can use (Purchase Price x .85) x .024. In other words, 2.4% of 85% of the purchase price (from http://www.pcpao.org/estimate_taxes.html). The assessed value will "reset" at the new purchase price, and your taxes can change dramatically from the previous years (this is especially true if you are buying from an owner occupant with a homestead exemption and save-our-homes cap).

Gone are the days of buying a turnkey rental operating at a 10-cap. A rapidly appreciating market is a tricky time to buy rental properties, as rents are slower to respond to sales price increases, causing cap rate compression.

That being said - it is still possible to purchase at a much lower cap rate, but then increase the cap rate with improved management (i.e. decrease expenses and raise rents).

Hey Adam,
I'm new to the whole real estate adventure, as well, but I think your analysis seems right. I have noticed that once expenses and mortgage are factored in, there is not a lot of cash flow.

However, I have also heard that this is just a phase. The idea would be to move those bought properties to owned, and then achieve true cash flow.

Maybe a better metric to determine if you have a good deal initially is cash on cash ROI, and positive cash flow?

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