Real Estate Deal Analysis & Advice

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Medi Monam
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[Calc Review] Help me analyze this deal

Medi Monam
Posted Jun 2 2022, 23:43

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Hi Folks, 

I want to get a second eye on this. Do the expense numbers I have included here make sense? I feel I have over estimated - but I want to be sure. 

Thanks 

Phoenix, Arizona

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Replied Jun 3 2022, 00:26

What does the variable expense include? It seems quiet high. Are they maintenance cost? 

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Evan Polaski
  • Cincinnati, OH
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Evan Polaski
  • Cincinnati, OH
Replied Jun 7 2022, 06:35

@Medi Monam, are you sure about your loan terms? Depending on lender, it may be hard to get 80% LTV, particularly if you are going commercial. And 5% interest is probably low.

On the expenses, it really depends on the age and condition of property and area.  Generally speaking, I have found lower end areas draw lower end tenants, and lower quality tenants do more "wear and tear" on a property, and roll more frequently.  Additionally, older properties will generally need both more repairs and have higher near term capex.  I.e. a 20 yr old roof will need replaced in 5 yrs, but also is more likely to need patches.  Same with older systems, kitchens, plumbing, etc.  

Even if everything is new, I think your reserves are about right, if you are budgeting based on useful life of all items.  Again, a new roof will likely cost 8-10k in 25 yrs (assuming a 4-6k cost now).  As such, 8k / 25 yrs / 12 mo = $27/mo to have 8k reserved when you need it.  Do the same with HVAC, water heater, kitchen and bath remodels, flooring, exterior paint, siding, fences, retaining walls, decks, etc.  Some will last a long time, like tuck pointing a chimney (hopefully 50+ yrs) but is also pretty pricey to do when it does come up (and you typically find out you need it because you are getting a leak that took out drywall and insulation).