Help with analyzing numbers

9 Replies

This forum has changed the way I view money, not just RE. Thanks to all.

I would like to put in an offer on a brick duplex in my neighborhood. It's in great shape...I'm my own property manager and maintance guy but I've got a network of subs in case. Still trying to acquire my first property.

At my offering price, the 50% rule would be satisfied. However, when using the Property Analysis tool from BP, I get only $75 per door Here are my numbers...

70K price, $9,800 down payment at 7%/ 30 yr. mortgage

Rents at $900, $450 for each 2/1 unit

advertising $5/month
cleaning $3/ month
ins. $50/month
maint. $25/month
Landscaping $5/ month
PMI $30/ month
Taxes $91/month
Trash $10/month
utilities (propane) $75/month

Any thoughts, general or specific, would be appreciated. Thanks!

I would not touch this at 70K. You are already looking at around $700 per month out of your pocket and you can't make it a good deal by putting down a lot of money. Even if you throw the 50% rule out the door, there is not enough room for expenses in my opinion. At those rents, If it had a lot of equity I would have to get it at 40K, 20K per unit and no rehab.

And I want your trash service for 10 bucks a month..

I understand that....while I'll have some equity right off the bat, I won't have near the goal for the "buy right" standards I've seen some of you guys talk about. That seems to be a bigger stumbling block than lower-than-wished-for cashflow, huh?

Tom C, 20K per unit is unheard of around here (college town). I'm looking at places way out in the county and not even thinking about anything in town. Still, those are unbelievably strict standards for my area.

I've learned from this site that the numbers have to work, though. I'll keep digging around.

I appreciate the feedback

I understand what you are saying, but at $450 per unit a month this is a bad deal. At 70K, your area should be able to demand $600+ a month in rents per unit.

$450 a month is what we get in my area for an 2/1 apartment and you can certainly pick up a duplex much cheaper then 70K. So there is either a lot of rentals in this area or they are asking too much for the place.

Let's see what MikeOH has to say on the topic. I am interested in hearing his point of view.

Thanks

I assume this property has a broker's "For Sale" sign out front. I don't have much luck with MLS properties unless they've been on the market for a long time.

My last three purchases were an REO, a HUD, and a 'don't wanter'. There were no signs out front. Finding such properties isn't rocket science, you can read up on the various methods on this site.

Two of those properties were on the low-income side of town because that's where the numbers worked. These types of properties are 'management intensive' as a rule. But college rentals can be, too.

Finding workable college rentals is difficult where I live. My competition is doctor-daddies buying something for their little angels at outrageous prices, speculators betting on big appreciation, and 'hobbyist' investors who don't understand the numbers. I was talking with a professor last week who was just bursting with pride because he was going to rent his house out for $900 and the mortgage was only $800! I gave him my card.

Succesfully investing in real estate is simple. But it is in no way easy.

I couldn't agree more Typerider...that's the situation I've run into in my town, too. Overpriced! Of course, the appreciation can be great, but not at the expense of cashflow, I guess.

The property in questions is an MLS, but it's been on a while. My 70K pricepoint would be the max I'm willing to pay and well under their asking price.

Perhaps this is a situation where the 50% rule is a good screening tool, but further analysis shows that it's still too expensive?

For the record...I'm toying around with finding motivated sellers...I've sent some letters and put the word out around town. I've lurked in the REO and foreclosure BP forums quite a bit. I use my GIS county site a lot to find info on places, too.

Thanks...

rjkeefer,

Perhaps this is a situation where the 50% rule is a good screening tool, but further analysis shows that it's still too expensive?

You clearly don't understand the 50% rule or how to use it. The 50% rule simply says that the operating expenses will be HALF (50%) of the gross rents. That's it. It isn't a screening or analysis tool and doesn't say anything about the price you should pay.

Here's how I see this deal:

Gross Rents: $900
Operating expenses: $450
NOI: $450

Mortgage Payment ($70K, 30 yr, 7%): $466

Monthly cash flow: $16 LOSS

I would certainly not call this a good deal! (not even close)

Keep studying, you don't understand the cash flow issues yet.

Mike

I will continue to study... I don't want to get burned, that's for sure. I appreciate the feedback. I'll keep that clarification of the 50% rule in mind.

Thanks again!

Originally posted by "rjkeefer":
This forum has changed the way I view money, not just RE. Thanks to all.

I would like to put in an offer on a brick duplex in my neighborhood. It's in great shape...I'm my own property manager and maintance guy but I've got a network of subs in case. Still trying to acquire my first property.

At my offering price, the 50% rule would be satisfied. However, when using the Property Analysis tool from BP, I get only $75 per door Here are my numbers...

70K price, $9,800 down payment at 7%/ 30 yr. mortgage

Rents at $900, $450 for each 2/1 unit

advertising $5/month
cleaning $3/ month
ins. $50/month
maint. $25/month
Landscaping $5/ month
PMI $30/ month
Taxes $91/month
Trash $10/month
utilities (propane) $75/month

Any thoughts, general or specific, would be appreciated. Thanks!


my handy dany APOD says offer 51,000 if you want a 10 percent cap
you really have to define are you buying for upside or cashflow. This on the outside looking in looks like cash flow typr deal. I do not know your area to judge
here is what I came up with
maint number is way to low
DM_APOD 2008 - Simple Format

Fill in BLUE Cells: Units, rental per period, Monthly Exp, etc. on this Page,
Purchase Price, Investor's required CAP/Interest Rate, etc. on Base Values Page

ANNUAL INCOME ANALYSIS FOR: #NAME?
Seller Test Seller Buyer Investor
Purchase Price: $70,000 Cap Rate: 6.00%
Down Pmt Avail: $9,800
MTG Bal: $60,200 Mtg Rate: 10.00%
MTG Pmt: $500

Number of Rent per Total Rent
Units Month Per Type

1 1 $450.00 $450.00
2 1 $450.00 $450.00
3 0 $0.00 $0.00
4 0 $0.00 $0.00
Total Mnthly Total Annual
Totals Rent Rent
2 $900.00 $10,800.00

Potential Gross Income (PGI) $10,800.00
Other Income Type of Inc: $0.00 $0.00
Vacancy Rate 20% of PGI ($2,160.00)
--------------------
Effective Gross Income (EGI) $8,640.00

FIXED EXPENSES:
Monthly
Insurance $50.00 $600.00
Trash pickup $0.00
Property & Other Tax $91.00 $1,092.00
Commissions/Payroll $0.00

VARIABLE EXPENSES:
Lawn $5.00 $60.00
Misc Exp $90.00 $1,080.00
Supplies/Maint $25.00 $300.00
____________
Net Operating Income Before Debt Svc (NOI) $5,508.00

Debt Service at $500 Monthly Payment $6,000.00
Cash Throwoff (CTO) ($492.00)

Int portion of Debt Svc $60,200 X 10.00% (Annual) $6,020.00
Equity part of Debt Svc (Annual) ($20.00)
_________ _________ _________ _________ ____________
Investors Value of CTO at 6.00% (CTO / Investor Rate) ($8,200.00)
Add Mortgage Balance $60,200.00
Value of Equity at 6.00% (Equity / Investor Rate) ($333.33)
Value at Desired Cap Rate 10.00% ---->> $51,666.67
Sale Price vs Analysis: $70,000 Difference: ($18,333.33)
Debt Svc Coverage Ratio (DSCR) 1.19
***** FIGURES ARE APPROXIMATE, NONE ARE GUARANTEED OR WARRANTED *****
I will share my APOD