Looking at my first rental property! Check my numbers? :)

7 Replies

Hello all, first off thank you for taking the time to read this post...

I believe I have found my first viable rental property and I was hoping that some of the more seasoned rental gurus would be able to take a look at the numbers and let me know if everything looks in order. To me everything looks like it will provide a good return on my rental property. This is a condo unit. Please see the numbers below...

Property is a 2 bedroom, 2 full bathroom condo unit. The unit includes a balcony and an in unit washer / dryer.

Assumed Value After Capitol Improvements: $125,000

Percent Down: 25% (Currently What My Lender Is Requesting) $31,250

Interest Rate: 3.5%

Rental Term: 30 Years

Buying Costs: 1%

Rental Rate: $1,500 ($750 Per Renter) - Includes Garage Parking, Washer / Dryer In Unit

Cap Rate: 14.40%

Vacancy: 8% Annually

Rent Increases: 2% Annually

Property Management: 6% (I plan to do most of the property management)

Maintenance: 1%

Move In / Move Out Costs: $2,000 (This is per vacancy change)

Mortgage Payment: $979 / Month

HOA: $317 (Includes - CAM, Lawn Care, Master Insurance Policy {does this mean I don't need additional insurance?}, Snow Removal)

After All Expenses for the first year I expect to pull in an average of $1,380 / Month Gross and about $401 / Month Net (after mortgage payment). Does this sound reasonable?

What about the fact that utilities are not included? 

I have a similar property for about the same price (Includes Two Parking Spots) but the HOA fee is $702 / Month (CAM, Exterior Building Maintenance, Heat, Lawn Care, Management, Master Insurance Policy, Reserve Funds, Sewer, Snow Removal, Trash Removal, Water) - Is this HOA fee too expensive even though it includes all those amenities?

*Land Value Is Included In Property

Please let me know what you all think and if I missed any details let me know and I can surely add them.

Thanks!

Jordan.

I've never owned a condo, so keep that in mind.  But it sounds like a decent monthly cash flow.

1% maintenance seems extremely low, though. While I'm assuming you won't face some of the capital expenditures (CAPEX) that a SFH would, maintenance expenses are typically the wear/tear/replacement/repairs of items/services inside the home. Like the fridge goes out and you have to buy a new one. There is a bad clog in the bathtub and you have to hire a plumber. That kind of thing. I typically assume 10% of rent for just maintenance. This percentage will vary per investor, but somewhere around 5-10% seems to be the general rule of thumb.

I would require your tenants to pay for their own utilities.  Though, depending on your area, it might be common that LLs pay the trash/water.  If so, factor that expense in also.  But I personally would never include energy/gas in a tenant's rent.

I'm guessing you do still need to have some type of insurance for the unit, especially since you are financing.  The insurance you buy will basically cover damage to the interior of the unit as well as liability, though it should certainly be cheaper than normal because it won't need to include damage to things like the building's roof/siding/etc.

Also, if you haven't already, make sure the condo board allows owners to rent out their unit.  Some of them don't, at least where I live.  Or they put a limit on how many units can be non-owner occupied rentals.

Jordan,

I don't think your numbers are correct, unless I'm misunderstanding what you wrote. You're expecting $1500 a month in rent and you should allocate 8-10% for Vacancy, 8-10% for Management, 10% - 15% for repairs and CapEx, plus your HOA $317, utilities and taxes. While I don't know the taxes, insurance (may or may not be needed depending on the master policy), or any associated utility costs, this leaves you with a NOI of probably $500 - $600 a month. This would give you a cap rate between 4% and 5%. After your debt service, you would be in negative cash flow territory. There are some quick rules for checking properties like the 1% which looks ok, but the high HOA fees seriously hurt your bottom line. Your expected interest rate of 3.5% is also very low for NOO Investment Property.

-Christopher

I don't see any cash flow in this if your mortgage (which i assume includes taxes) and HOA fees are already about 1300. At 1500 rent, the max cash you can have is 200 a month before any other expenses, or unexpected expenses.

There is a program out there called RentFaxpro.com.  You do pay a very small fee, but the information is really great and is very specific to the area that you are looking in.  It might be able to help you a lot with the questions that you are asking.  Good Luck

I'm confused about a few things:

- "Assumed Value After Capitol Improvements"? Does that mean how much you are buying it for, or are you having to drop the money to make the improvements, and if so, what is the actual purchase price and amount for improvements? Not sure where you were going with that one.

- What numbers did you use to get to a 14% cap rate? I guarantee this isn't a 14% cap rate property.

- $401/month net...with that kind of condo fee...not possible. How are you getting to that number?

Yes you are right. I royally screwed this up I used numbers from two different properties... I will get the correct ones here... Best not to work late.