Rookie here! trying to find my first deal! SO ready to buy our first investment property but need more info. Learning how to read these reports and determine how good of a deal or bad. What are the best indicators to really pay attention and which ones are for guidance but can still be a good deal?
Any info/advise is much appreciated.
Thanks!
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@Ilena Napoles Hard to analyze without more info. Size of the property, affects capex numbers. How many units. Interest rates seem low for an investment loan. Be closer to 6.5 to 7%. Like @Mitch Miller said your insurance and taxes seem extremely low. Most taxing authorities are at 1% of purchase price or more. I don't know if your state changes taxes after a purchase. If you looked it up the present owner may have a homeowners exemption and his taxes will be lower. Your new tax bill could be $2000/12 or $166 per month. A vacancy factor is the same as a turnover every 20 months. 5/100=1/20. What happens if you have to evict and it takes you 3 months to get them out. Your next tenant will have to stay 60 months to get back to the 5% vacancy.
You will need to run a capex and maintenance budgets to see if your numbers look good. Using a percentage may not be the right answer. Here is an example of a maintenance budget. Upon turnover what are you going to do. A complete paint ot touchup. Are you going to deep clean before the next tenant. How many service calls in your time line. Using the 20 month turnover. Cost to paint $1000. Cost to clean $300. Number of service calls 1.5@$150=$225. Total cost $1525/20 months=$76.25. This would be how a maintenance budget would be done. You might have groundskeeping upon turnover and that would have to be factored in. You would have do a similar process with a capex budget.
@Ilena Napoles Hey congrats on getting started! The more of these deal analysis you do the more you will be able to determine what is a good deal and what isn't. This deal looks extremely slim on the Cashflow side. Questions you will get are what is your goal with this property? If cashflow I would pass, if you are looking to buy and hold it for appreciation that is something only you can value as you should know the area.
Your numbers you use are acceptable but a little on the aggressive side. 5% on the vacancy and maintenance is pretty lean. If you think about turning a unit 8-9% is one month, so you are budgeting less than one month to turn your property if it becomes vacant. This becomes less of a problem if the deal had more meat on it but because its already lean this compounds that. Also I assume you used county records for tax and have a quote for insurance on the property both seem low but I have no idea where this is so can make comments on that.
My suggestion is continue to look at more deals and you will start to see what is a good deal and what isnt.
Thank you so much! This is so helpful, especially how the vacant % translates to vacant months. I will continue to push along. Thanks again for your guidance and time!
Another thing to consider is if you are living in the property. I am assuming that this is just an investment property but if you house-hack or reduce your monthly living expense YOU are paying you might not necessarily need a positive cashflow. Just another thing to consider. Good luck and hope you can find a property soon.
Thank you! Yes, it’s for an investment - our first one. I’m sure we (husband and I) will feel so much better once we have our first one locked down and have gotten the hang of analyzing deals. You guys are great! Thanks again!
@Ilena Napoles Hard to analyze without more info. Size of the property, affects capex numbers. How many units. Interest rates seem low for an investment loan. Be closer to 6.5 to 7%. Like @Mitch Miller said your insurance and taxes seem extremely low. Most taxing authorities are at 1% of purchase price or more. I don't know if your state changes taxes after a purchase. If you looked it up the present owner may have a homeowners exemption and his taxes will be lower. Your new tax bill could be $2000/12 or $166 per month. A vacancy factor is the same as a turnover every 20 months. 5/100=1/20. What happens if you have to evict and it takes you 3 months to get them out. Your next tenant will have to stay 60 months to get back to the 5% vacancy.
You will need to run a capex and maintenance budgets to see if your numbers look good. Using a percentage may not be the right answer. Here is an example of a maintenance budget. Upon turnover what are you going to do. A complete paint ot touchup. Are you going to deep clean before the next tenant. How many service calls in your time line. Using the 20 month turnover. Cost to paint $1000. Cost to clean $300. Number of service calls 1.5@$150=$225. Total cost $1525/20 months=$76.25. This would be how a maintenance budget would be done. You might have groundskeeping upon turnover and that would have to be factored in. You would have do a similar process with a capex budget.
Thank you so much! Very helpful information. Since I’m new at this, I was playing with the numbers estimated the vacancy and maintenance capex. Your example is great so thank you for your time in breaking it down. I’ll consider all this when doing analysis for other properties.
@Ilena Napoles you need to learn to tag people. Use the @ sign and start typing their name. It should appear and you click on it. It will populate the comment box. Then the person is contacted. Especially important if you have a question. If you learn something it is also nice to vote for the post.
Hi @Ilena Napoles, I use Cash-on-Cash return as my primary tool and it looks too small for my tastes. There are a few assumptions you need to build into the review of the property and these can fluctuate. Many of the other people here have pointed them out. CapX,vacancy, repairs, and property management are the other things to consider when buying a property. Take a look at a few YouTube channels that will help you along the journey. "One rental at a Time", "Dion talk financial" and for more on CoC return watch my channel (should be in my Bio).