I am only just learning and decided to go onto Realtor.com and analyze some properties. My initial thought is that I would analyze a few that caught my eye and all of them would be bad or maybe 1 in 10 would be viable. The odd thing is, all of the first three I looked at, I decided they were good deals, this makes me think I am analyzing incorrectly. Can someone point out where my line of thinking is incorrect?
Address: 258 Duer St
Purchase Price: $270,000
Cost to fix up: I'm not sure, the kitchen in one looks nice at least, assume 20,000-40,000
Rent Price: I looked on rentometer and it says for a 3x2 in this city it would be around $2,200 so $4,400 total
Mortgage: estimating around 1800 with 20% down, an extra point for the rate and the full taxes
This would be a cashflow of 2600 (Is this real?) and a cash on cash of +35%
What am I missing?
Disclaimer: There are many ways to analyze properties, so this just my opinion.
If this is purely an investment opportunity and not a house hack, you may find it difficult to find a lender willing to do an LTV of 80%. I think it more likely you'll have to put 25% down. I also did a very quick look at rental comps in the area and I think you may be being overly optimistic (I am no where near this area though so if you are comfortable with your numbers then trust them). I estimated a total gross monthly rent of $4,000.
I'd also factor in at least 5% of the monthly rent each for capital expenditures and maintenance. With the age of this building though you may even want to increase those percentages a bit. I'd set aside 8% for maintenance and 5% for cap ex for a total of 13%. You'll also need to factor in vacancy rates, which can vary from area to area. Try 5% of the monthly rent if you're unsure.
I do not know insurance rates for that area but I'd guess around $1,400 annually. Assuming the utilities are metered separately, the landlord still likely pays for water and sewer. I guestimated $60-$70/month for those costs. Then you also include taxes, which I rounded up to $11,000 annually (ouch!). Finally, I always throw in a bit extra for snow removal and landscaping costs, usually $50/month.
I estimated an interest rate of 3.875%, spending $30,000 on reno, with the above math and the assumption you are going to self manage the property.
After all that, my math came out with a cash on cash return of 14.82%.
Everyone runs their numbers slightly different so you may be more or less conservative based on your comfort level and experience. I hope that is helpful.
It’s a short sale
So who know how long it will take and how much it will sell for
Thanks for the replies, the bit about it being a short sale does make some sense as well. I guess if I am looking to buy and rent it out it doesn't matter a ton to me how long it takes but it could be a lot of back and forth.
Math is right but owner Max Pepin died 2018 and been trying to sell since year after. Taxes run around 10,000 lot of money to put out on house sitting there that still has surviving residents living in it that will have to contend with. Not to mention little research will show others have claim to property that will have be dealt with. Sure tons other hoops jump thru and renovations take time. Your profit on calculator will wind up being to recoup losses and bail.