[Calc Review] Help me analyze this deal

[Joseph Vaughn]

Hey BP family!

I'm running my initial analysis on an investment opportunity in Athens. I want to put in an offer to tie the property up so I can do my homework (approve sellers books, records, leases, property management contracts, preliminary title report, underlying encumbrances, and physical inspection of the property. The property is being sold by a fix n flipper for $245,000 and it has sat on the market for 36 days so far. The flipper took a Class C property in a Class B neighborhood and upgraded it to a Class B property. 

The value add potential 

- increase rents strategically since they are currently under market value

- create additional revenue streams like an affiliate program partnered with a local business that will offer my tenants a service and I'd receive a referral amount

- continue to analyze the revenues and expenses to improve NOI (i.e. hire professional property manager)

This is not a home run deal, but the goal here is to get started and get my feet wet in investing. 

View report

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

[Chris Seveney]

@Joseph Vaughn

Is this one or two units?

Expenses and capex seem screaming low. Also this property is cash flow negative, if the market softens at all you are 100% stuck with this property and it’s not cash flowing.

What’s your exit strategy in this asset?

[Jordan Wright]

The property doesn’t pass the easiest calculator, the 1% rule. Needs to rent for 1% of purchase price. If it doesn’t, it’s not worth your time to dig any deeper. 

[Joseph Vaughn]

@Chris Seveney this is a duplex, each unit is 2 beds / 1 bath. Let me provide a little background and then explain why those monthly expenses are so low. I'm reading "How to Negotiate Successfully in Real Estate" and following its recommendation of locking up a property to do my homework for two reasons - (1) Be another potential buyer to the property and (2) gain access to the actual revenue and expense (pro forma) documents. This post is me proofing my concept and hoping to get feedback like yours. Getting the correct list of expenses can be really difficult so I went with the recommendations from the book hence why they are screaming low. What dollar amounts or percentage ranges are investors using when doing this quick screen process to see if this deal warrants further analysis? 

[Joseph Vaughn]

@Jordan Wright it doesn't pass the easiest calculator and yet an investor will pick this property up because of its location. What would you do to get this property locked up?

Here are some more details:

- Renovated in 2021

- Electrical, plumbing, roof, HVAC, and HWT updated within last 10 years

- 1 unit is occupied and 1 unit is vacant

- 1 unit is occupied for $800 per month (market rent for this type unit is $950-1150)

Feel free to ask any clarifying questions. I'm hoping you take the time to answer this because I think it would be valuable for me to see/learn how others assess value and create an offer. Thanks!

[Chris Seveney]

you mention one unit occupied and one is vacant, but your carrying a 5% vacancy rate? Most likely people who have a one or two unit property typically do not have great books or records. It could be they dont want to share info with you as it will show a lot worse than it is, or they just do not care or keep track. 

[Jordan Wright]

Quote from @Joseph Vaughn:

@Jordan Wright it doesn't pass the easiest calculator and yet an investor will pick this property up because of its location. What would you do to get this property locked up?

Here are some more details:

- Renovated in 2021

- Electrical, plumbing, roof, HVAC, and HWT updated within last 10 years

- 1 unit is occupied and 1 unit is vacant

- 1 unit is occupied for $800 per month (market rent for this type unit is $950-1150)

Feel free to ask any clarifying questions. I'm hoping you take the time to answer this because I think it would be valuable for me to see/learn how others assess value and create an offer. Thanks!

 You are an outside of the box thinker. I think you have a good head on your shoulders and will do good!

This is my thoughts when looking at a deal.

Can I flip this property- No you can't, someone has already done the value-add aspect to this property.

Can I BRRRR this property- No you can't, someone has already done the value-add aspect to this property.

Can I Simply rent this property- Based on the report you generated it does not cash flow. 

Lastly, if I need to unload this property, do I have enough equity to not take a loss. Based on the comps attached, you would be underwater on this deal. These are all duplex properties. Only 2 came close to the asking price of your property.

121 Loblolly Dr, Athens, GA 30601-1479
APN: 16-1-A3 A-005 / County: Clark

A Public Record 385 Fowler Dr Sold 2/25/2022 $180,000 1,943 $92.64 2 1982 0.15 mi
B Public Record 100 Sayemore Dr Sold 5/24/2022 $213,200 1,848 $115.37 4 2 1983 0.19 mi
C Public Record 365 Fowler Dr Sold 5/26/2022 $215,000 1,848 $116.34 4 2 1983 0.19 mi
D Public Record 330 Monty Dr Sold 9/24/2021 $183,000 1,436 $127.44 3 2 1988 0.22 mi
E Public Record 630 Freeman Dr Sold 4/25/2022 $246,500 1,848 $133.39 2 1983 0.23 mi
F Public Record 124 Massey Ln Sold 1/20/2022 $243,000 1,848 $131.49 4 2 2016 0.28 mi
G Public Record 180 Sayemore Dr Sold 7/12/2021 $180,000 1,904 $94.54 2 1983 0.30 mi
H Public Record 192 Sunny Hills Dr Sold 2/03/2022 $165,000 2,038 $80.96 2 1983 0.36 mi
I Public Record 130 Ashmore Dr Sold 2/09/2022 $175,000 1,848 $94.7 2 2 1983 0.36 mi
J Public Record 120 Port Ln Sold 10/18/2021 $205,000 1,607 $127.57 2 2004 0.43 mi
K Public Record 1087 Danielsville Rd Sold 10/28/2021 $160,000 2,030 $78.82 4 1965 0.44 mi
L Public Record 955 Danielsville Rd Sold 11/02/2021 $75,000 2,069 $36.25 1958 0.49 mi

[Drew Sygit]

@Joseph Vaughn if one unit currently rented for $800 and other is vacant but should rent for $950-11050, why are you only using $1600 for rents?

Where is your 5-10% maintenance factor?

Who's paying water, cutting grass?

You are using 5% vacancy factor, so iIs this a Class A property? If Class B or C, you should bump your vacancy factor to also account for nonpaymet of rent.

[Joseph Vaughn]

@Chris Seveney @Jordan Wright @Drew Sygit it seems like this property should not have gotten through my "filter" based on the comments and questions. That has been very valuable! I went and got another book today, "Commercial Real Estate Investing for Dummies", and the light bulb went off when reading it and thinking about your advice. 

First, I determined cap rate for this type of property in the market - 4.46%

Second, I determined NOI - $7,924.22 based on 6.20% vacancy rate and 60% expenses

The property value based on those variables is $177,792.78 - NOI divided by CAP RATE

Next, I calculated pro forma numbers using market rent numbers and got a NOI of $9,455.04 based on 6.20% vacancy rate and 60% expenses. The property value based on those variables is $212,139.11 so based on that I don't think this Seller would be classified motivated assuming my numbers are right.

Property Address: 120 Loblolly Dr, Athens, GA 30601
Asking Price: 245000
Vacancy %: 6.20%
Expenses: 60%
Cap Rate: 4.46%

Total Monthly Income $1,760.00
Total Annual Income $21,120.00
Vacancy Rate * Annual Income $1,309.44
Effective Gross Income $19,810.56

Net Operating Income $7,924.22
Actual Property Value $177,792.78


Total Monthly Income $2,100.00
Total Annual Income $25,200.00
Vacancy Rate * Annual Income $1,562.40
Effective Gross Income $23,637.60

Proforma Net Operating Income $9,455.04
Proforma Value $212,139.11

Unit Type # Unit Monthly Rent ProForma Total
Studio $-
1 Bed $-
2 Bed 2 $880.00 $1,100.00 $1,760.00
3 Bed $-
4 Bed $-
Other $-

[Drew Sygit]

Make an offer based on your numbers, maybe they accept.

[Chris Webb]

@Joseph Vaughn, it has been sitting for 30 days in this market, lol ( the market is changing to favor buyers). I would ask the seller to pay down the loan, give them a higher price and ask for concessions to buy down your rate. This will lower your monthly costs and increase cash flow. Best of luck! 

[Luke Bauer]

@Joseph Vaughn on the list of comps posted by @Jordan Wright, I sold 385 Fowler Dr on 2/25/22, I own a duplex on Freeman Dr which appraised for $210,000 in March 2022, and I own a duplex on Ashmore Dr that appraised for $180,000 in February 2022. In total I have 8 comparable duplexes in Athens, 5 of which I refinanced between Jan-March of this year. Appraisal values for all of these (varying conditions) ranged between $165k-210k. I say all of this because $245k sounds high in my opinion in comparison to what an appraiser will tell a bank it is worth. I can also tell you that this neighborhood will not support B class tenants. Even fully renovated, you will get C class tenants on the majority of the streets in this neighborhood (dependent on your definition of B vs C). The good news is, these type of units at this price point are in high demand. 5% vacancy is a good conservative estimate but a good property manager will have this place rented as soon as it is rental ready (if not before haha). Below is what I have seen as far as rents and average annual expenses in this asset class.

Market Rent:    $1000/unit (fixed up)
Annual total:   $24,000 (Gross rents)

Vacancy:         $1200/yr
Property Tax:   $1750/yr
Insurance:       $1080/yr
Prop MGMT:     $1920/yr (8%)
Landscaping:   $1200/yr
Maintenance:  $1800/yr
Capex: $1200/yr (check age of roof $7-9k to replace and HVAC $4500-5200 to replace)
Total Expense: $10,150/yr

NOI:                $13,850/yr

Mortgage PI:   $13,412/yr (20% down on $210k purchase, 30 yr fixed at 7%)

Cashflow:       $    438/yr

Certainly not a homerun by any means, but it gets you into the property. Some items to consider are the large capex as these will kill your cashflow. Your major expenses will be roof, HVAC, and siding as long as the structure is in good shape. Windows can also be expensive if you have a particularly rowdy tenant... DONT SKIP SCREENING

Value and rents in this area for this asset class have exploded. 120%+ appreciation and 50% rent growth in 4 years. If you don't believe me, look at historic sales of all of these properties on qpublic. While I do not believe we are in for a market crash, I would expect to see these growth rates flatline with rising interest rates. I have a hard time predicting rent growth as demand for these units is still through the roof, but I would imagine they will soften with price stabilization. 

Feel free to DM me if you have questions!

Thanks!