Help me analyze this deal please

6 Replies

Looks like a solid deal, what exactly are you looking for help with for this deal?

If you're asking if the returns are strong, the numbers look great! If you want a more detailed underwriting of the deal, I just posted a link to some spreadsheets I created for analyzing deals! (click here)

Gotcha, it looks like your expenses might be a bit on the low side. I noticed a vacancy of only 3% (8% is expected especially if you only have one property with no established funnel/marketing presence for tenants) and no fixed expenses. Also, depending on how old this home is, I would expect an allowance of CAPEX of $150 to $200 a month.

As far as revenue goes, I would guess as a realtor, you have a good idea of what rent rates are in your area, so that seems fair.

I don't know your market, but given the competitiveness of REI right now, unless you found this off-market, these numbers seem to be too optimistic. With that being said, even with higher expenses I think this could be a great first deal, don't fall into analysis paralysis!

@KerryAnn Fuller Rainey Property taxes will not be $38 per month. Might be a long term owner with home owners exemption. More likely $200 per month. Vacancy of 3% is the equivalent of your tenant staying 33 1/3 months average. Let's say you get a covid tenant and can't evict for 6 months, To get back to the 3%, Your next tenant has to stay 200 months before turnover. 3/100=6/200.  I like to use 8%. My minimum for maintenance is $50 per month or 5% whichever is greater. My average repair bill averages $150. This leaves me a cushion to paint between tenants.

What is included in your capex budget. Mine has roof, floors, appliances, hot water heater, bath and kitchen remodel, etc. Let's assume there is 1200 sf of flooring. Floors have a lifespan depending on the type. Carpet 5 years, Laminate 10 years, Hardwood 25 years(still need to refresh every 10 years or so), tile 25 years. Say you put brand new laminate in when you bought. My area it $6  sf to tear out and install. 1200 sf*$6 sf = $7200/10 years life span/12 months in a year= $60 per month for 1 item. My minimum is $100 or 10% whichever is greater. Good luck.

@KerryAnn Fuller Rainey , I agree with Tim.  I actually average a little less than 3% vacancy over the last 10 years, but it is always good to be conservative.

The bigger issues I see are the repairs and Capex reserves. Just from the picture, that column holding the front porch seems to have a bend at the top, where maybe the blocks are starting to fall, or the post is rotting. Maybe I am seeing things, but if that is an issue, you have just eaten through likely all of year 1 and 2 Capex reserves.

Taxes seem low, but you should run those based on YOUR purchase price, not what the current owner is paying.  
Insurance is in line with my rates, but I am in midwest where I don't have hurricanes, but you should be able to get a real quote from your agent.

Repairs: I would say, at minimum $100/mo, but it all depends on the condition and your tenant base.  A roof repair once cost me $3000 to reflash, cap and seal a ventilation chimney. A range going out will be 400-500 for the cheap version.  But more likely, touching up paint with each turn will be $500-1000, depending on how bad it is.  A repaint could be $1500+.

Who is responsible for landscaping?  My SFRs: tenant does all routine work, but any annual maintenance I am responsible for, like all those very large bushes, or that tree on the left (assuming it is your).

I would simply go through each item in the house: kitchen, HVAC, fencing, roof, driveway, exterior paint, windows, etc and assign a remaining life and cost.  Then you can create a true cape schedule, and assign costs for immediate, yr 1, yr 2, yr 3, etc, to make sure you are reserving enough for each item.

As others have stated. The taxes are very low. Does that county reassess upon sale? Also, I’d apply a 8% vacancy/credit loss rate. 

Moreover, you’ve applied $0 for management. So I’ll assume you’ll be managing in yourself. You should still input a reasonable rate for your time in order to make a apples to apples comparison to other more passive investments. Some investors will figure out how much actually time will be spent on this aspect and multiply  that by a perceived rate their time is worth (almost like an opportunity cost) So 50 hours a year x $25/Hour = $1,250 in yearly management.